Nonprofits and 1099s: What Every Leader Needs to Know Before the January Deadline

January is crunch time for nonprofits, and one of the biggest questions leaders face is: Who do we need to issue a 1099 to? And what happens if we didn’t collect a W-9? Here’s a practical guide for nonprofit leaders preparing for the January 31 deadline.

Do Nonprofits Need to File 1099s?

Yes. Even though your nonprofit is tax-exempt, you’re still required to report certain payments to the IRS.

The most common form is the 1099-NEC, which reports payments to nonemployees. If your nonprofit paid an independent contractor $600 or more during the year, you must file a 1099-NEC.

Who Needs a 1099 From Your Nonprofit?

Common examples include:

• A landscaper operating as a sole proprietor
• A guest speaker or musician at an event
• A web designer or IT consultant
• A janitorial service run by an individual
• An off-duty officer providing event security

If they received $600 or more and they are not a corporation, they should receive a 1099-NEC.

Exceptions:

• Payments made by credit card or PayPal are reported by the processor, not you.
• True corporations generally do not require a 1099, but always confirm with their W-9.

Why W-9s Matter

The W-9 form provides a contractor’s legal name, address, taxpayer ID, and filing status. You don’t file it with the IRS—you keep it in your records.

Best practice: Always collect a signed W-9 before paying a contractor.

Even if you think they are incorporated, request the form. Many individuals operate under assumed names but are not actually corporations.

What If You Didn’t Collect a W-9?

If you forgot to collect a W-9, here’s what to do:

1. Reach out immediately and request the form.
2. Document your attempts.
3. Going forward, make W-9 collection a required step before issuing payment.

If a contractor refuses, the IRS requires you to withhold 24% “backup withholding” on future payments.

The Bigger Mistake: Employee vs. Contractor Misclassification

Misclassifying employees as contractors can lead to penalties, back taxes, and legal exposure.

The IRS looks at three key areas:

• Behavioral control – Do you direct how, when, or where the work is done?
• Financial control – Who provides tools and bears the financial risk?
• Relationship – Is the work ongoing and central to your mission?

Court rulings have added more indicators:

• The nonprofit provides the tools or space.
• The work is performed on-site.
• The nonprofit dictates when and how long the work is done.
• The work is part of the nonprofit’s regular operations.

Examples:

• A grant writer who sets their own schedule is a contractor.
• A communications coordinator who reports daily is an employee.
• A guest musician at Easter is a contractor.
• A weekly worship leader is an employee.

How to File 1099s

Options include:

• Accounting systems with integrated 1099 tools
• A CPA or payroll provider
• Third-party services like tax1099.com

Both the IRS and the contractor must receive copies of the 1099 by January 31.

If you miss the deadline, file as soon as possible. Penalties increase over time, but late is better than not filing at all.

January Checklist for Nonprofits

• Review payments from last year.
• Identify anyone paid a total of $600+ (2025 threshold) who isn’t on payroll.
• Confirm you have W-9s on file.
• File 1099s with the IRS and provide copies to contractors by January 31.

Building Better Systems

Avoid the January scramble by:

• Collecting W-9s before issuing payments.
• Storing them securely and centrally.
• Using software that tracks 1099 vendors.
• Training staff and board on compliance basics.

Moving Forward With Confidence

With strong systems in place, January doesn’t have to feel overwhelming. You can file your 1099s on time, avoid penalties, and protect your nonprofit’s reputation for stewardship.

If your leadership team could use additional guidance, I want to invite you to download 5 Steps for Nonprofit Leaders to Thrive. It’s free, and it gives you practical tools to build clarity, protect your team, and lead with confidence.

And if your nonprofit is facing bigger financial decisions—whether that’s structuring contractor policies, deciding whether to bring on a VA or hire staff, or preparing for a capital project—these are exactly the kinds of forward-looking decisions our team specializes in.

As Fractional CFOs, we help churches and nonprofits:

• Create more resources to do more good
• Translate vision into attainable financial reality
• Make strategic decisions based on actionable, real-time financial data

To share your mission with us and start the conversation, visit terisaclark.com/you.