New IRS 1099 Rules Set to Hit Charities Hard

It seems like the hits just keep on coming.  First it was the Form 990-N rule changes that will cost a yet-to-be-determined number of nonprofits their tax exemption.  Now organizations are waking up to the news that the controversial new Health Care Law is bringing more draconian rule changes their way…namely the new requirements regarding Form 1099-MISC set to hit after next year.

So what are the new rules and why are they so bad?  We’ll explain that, but let’s first take a look at what the current rules are.

Under current law, a business is required to give a Form 1099-MISC to any independent contractor who is paid $600 or greater in a calendar year.  An independent contractor is defined as a non-corporate business entity, such as an sole proprietor or partnership.  For most businesses, this doesn’t create much of a burden.  That’s all about to change…

Starting after 2011, businesses will be required to provide a Form 1099-MISC to all vendors and service providers who are paid greater than $600.  You read that correctly!  We’re talking Wal-Mart, Office Max, the local gas station…all vendors!  The burden this will put on small business, both for-profit and nonprofit, will be tremendous.  Imagine having to get the tax ID number and address of every company you do business with.  Then you must make sure you track every penny you spend with them, complete a Form 1099-MISC and try to get it to where it is supposed to go.  It’s going to be nuts!  To make matters worse, the IRS’s guidance on the matter is rather confusing regarding certain types of vendors.

The best case scenario is a public outcry that will lead to changes in the rules.  Keep in mind that, just like the Form 990-N rule changes, this is a matter of law.  Therefore, any future changes must be legislative.  If you are sick and tired of seeing unrealistic burdens put on small business, including your nonprofit, let your elected officials know about it.  Enough is enough!  Let your voice be heard.

And, if they won’t hear it now, let them hear it this coming November!

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About Greg McRay

Greg McRay is the founder and CEO of The Foundation Group. He is registered with the IRS as an Enrolled Agent and specializes in 501(c)(3) and other tax exemption issues.

14 Responses to “New IRS 1099 Rules Set to Hit Charities Hard”

  1. Helen Lakeru June 4, 2010 2:12 pm
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    All I can say to this new information is WOW! Any other comment might be inappropriate. I will send this link to an online non profit group I am part of. We do need to speak up and change this law if it is as described here.

  2. Laura south June 4, 2010 3:02 pm
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    This is more govenrment control making life harder and small businesses have to fight harder to survive. tjhis current govenerment is doing everything they can to undermine individulas and small businesses so they can control everything.
    I will do what I can to fight against it and share the word.

  3. Eliz Budry June 4, 2010 11:31 pm
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    Well, here you have it! dISTRIBUTING THE WEALTH, NEWEST COMMUNIST MANIFESTO DRAFTED BY GEORGE SOROS, OBAMINATION AND BILL AYRES! If people who own a business don’t go out and vote to get this jerk out of office, we can only blame ourselves for handing over this country to the Communist, without firing a shot. He is an ass, and those that don’t actively campaign to get him out are fools.

  4. Jeff Hartman June 21, 2010 7:13 pm
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    We are going to start a letter writing campaign to our representives. Does this new law have a senate or house bill number or is it just linked under the new health care law?

    • Greg McRay, EA June 29, 2010 11:26 pm
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      It is not a separate bill. It was buried within the new health care legislation.

  5. kim evans July 12, 2010 10:17 am
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    do you think private foundations will have to send 1099s to charities that it supports?

    • Greg McRay, EA July 12, 2010 11:19 am
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      I haven’t heard that this will be required, but I would not be surprised at all if it happens.

  6. Suzanne Tikker September 23, 2010 12:52 pm
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    Greg – has there been any change in this requirement. We are a very small 501c6(?) created for educational purposes. Monthly, we meet at a restaurant to discuss what is happening in our industry. We pay the restaurant for our dinners and sometimes a meeting room expense. Once a year, we host an all-day conference. We pay the meeting place for the room rental and food costs. It sounds like I need to 1099-Misc these establishments. Correct? Thanks and I look forward to hearing from you.

    • Greg McRay, EA September 23, 2010 2:24 pm
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      Unless the rules change, Suzanne, the answer is yes. The good news is that there is a major push underway to get this scaled back or repealed altogether. The inevitable change of control in the House after November makes some relief here very likely. Stay tuned…

  7. Stephen Fray October 25, 2010 12:32 pm
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    Do you have a section number in the Patient Protection and Affordable Care Act (HR 3590) or the Health Care and Education Reconciliation Act (HR 4872) that pertains to 501(c)(3) charitable organizations? Or maybe it’s in another law?

    I pulled up the text of both laws, and wasn’t able to find anything about 1099s, non-profit organizations, or anything similar to that described in this article. Something I can forward to my tax accountant, maybe, since he is also not familiar with this, and there’s a great regulatory business risk from it.

  8. Karen Griffin April 18, 2011 6:02 pm
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    I just read the requirements for the IRS 1099-Misc, and there is ABSOLUTELY NOTHING about having to pay vendors for items purchased to run one’s business or non-profit (like Walmart or Office Max). As a matter of fact, the IRS specifically states that:

    “Payments for merchandise, telegrams, telephone, freight, storage, and similar items;”

    are exempt.

    Please update this article and READ the IRS instructions before believing what this article states.

    You can go to the IRS website and search 1099-Misc instructions 2011 to find the information I am talking about.

    • Greg McRay, EA April 19, 2011 11:05 am
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      Thank you for your observations, Karen. You are correct…however, if you look at the date this post was published, the IRS guidance you are alluding to was not yet available. What little information the IRS had published at the time was very vague and open to interpretation. The prevailing interpretation at the time was that ALL vendor payments would come under the new rules. If anything, we should have updated this piece or taken it down.

  9. Nan Leibe August 23, 2012 6:54 am
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    Thanks so much for an interesting post. I’ve been looking around for this type of data for some time now.