Essential nonprofit tax compliance: Understanding 1099 Forms, new IRS e-filing requirements, and sales tax exemptions
By Raymond C. Brown, CPA
Nonprofits face a host of tax compliance responsibilities, especially when it comes to handling 1099 forms and navigating sales tax exemptions.
The following is a closer look at the forms and requirements, including the new IRS mandate that nonprofits or businesses filing 10 or more returns, such as 1099s, must do so electronically.
Understanding the Most Common 1099 Forms
Nonprofits often deal with various types of 1099 forms, each serving a specific purpose:
- 1099-NEC: Used for reporting non-employee compensation of $600 or more, including payments for services performed by non-employees and attorneys.
- 1099-MISC: Covers miscellaneous income like rent, royalties, and other payments, including prizes and awards.
- 1099-INT: For interest payments totaling $10 or more.
- 1099-R: Pertains to distributions from retirement plans.
- Each type of 1099 form necessitates a separate Form 1096 cover sheet.
- You must use official IRS 1099 forms – forms printed from online are not acceptable.
- Form W-9 is critical for gathering the required information from vendors.
- The due date for 1099-NEC is January 31, 2024 (with no extensions), while other 1099 forms are due February 28, 2024, by paper, and April 1, 2024, electronically. If needed, you can request an extension by filing Form 8809.
The new IRS electronic filing requirement
Starting this year, the IRS now requires businesses and nonprofits filing 10 or more tax forms like W-2s or 1099s to do so electronically. The threshold of 10 returns is based on the aggregate number of different types of returns.
- Non-compliance can result in penalties of up to $310 per return.
Your accountant or payroll service can file electronically for your nonprofit, or you can use software designed for tax filing or IRIS (Information Reporting Intake System), a new online portal developed by the IRS.
IRIS is a free online platform that requires no special software and allows users to create, upload, edit, view information, and download completed copies for distribution.
To get started, you need to apply for a Transmitter Control Code (TCC), which the IRS requires before you can file 1099s using the IRIS system. NOTE: You don’t want to wait until the last minute to apply for your TCC.
- Apply for your TCC here: https://www.irs.gov/tax-professionals/iris-application-for-tcc
- The IRIS website also has links to apply for a TCC, information about the 1099s you can file with the platform, and how to get started. Visit: https://www.irs.gov/filing/e-file-forms-1099-with-iris
Pennsylvania’s electronic filing system: myPATH
The myPATH online platform aids in managing tax obligations, offering features for filing returns, tracking payments, submitting documentation in response to certain letters from the Department of Revenue, and more.
- To learn about myPATH, visit: https://www.revenue.pa.gov/OnlineServices/mypath/Pages/default.aspx
Qualifying for Sales Tax Exemption
To qualify for a sales tax exemption, an organization must:
- Advance a charitable purpose with a community service aspect where you are volunteering or donating a substantial portion of the service.
- Benefit a substantial and indefinite class of persons who are legitimate charity subjects.
- Relieve the government of some of its burdens.
Applying for Sales Tax Exemption
The application process requires:
- Legal name, EIN, date of first operations, address, and contact information of the institution.
- Names of responsible parties and information on programs and charitable purpose.
- Supporting documentation including articles of organization, IRS determination letter, proof of EIN, bylaws, recent financial statements, and the most recent 990 form.
You can apply for a sales tax exemption via PaMypath. The platform allows for saving progress and returning later to complete the application. Once submitted, a confirmation code is issued, which you can use to check the application's status. The state typically requires a review period of at least 30 business days.
For nonprofits, staying informed and compliant with tax obligations is critical. Understanding the various 1099 forms, adapting to new electronic filing requirements, and navigating the sales tax exemption application process are essential to ensuring your nonprofit can pursue its mission.
The Boyer & Ritter team is ready to answer any questions and ensure your nonprofit meets all filing requirements.