Question: As we are assisting consumers with disabilities using COVID CARES Act funds, do we need to send the consumers a 1099 if the total for 2021 is over $600.00?

IRS doesn’t just say that all charitable payments to individuals are not reportable, but the following differentiates aid to individuals from the types of things that are reported on forms 1099 MISC and 1099 NEC. The 1099 forms report various types of income such as nonemployee compensation.

Here is a good newsletter that discusses and differentiates items that are income from items that aren’t income https://wscadv.org/wp-content/uploads/2017/08/Grants-to-Individuals.pdf

The following excerpts are from different sections of IRS website.

AID TO INDIVIDUALS , Organizations may provide assistance in the form of funds, services, or goods to ensure that victims have the basic necessities, such as food, clothing, housing (including repairs), transportation, and medical assistance (including psychological counseling). The type of aid that is appropriate depends on the individual’s needs and resources. Disaster relief organizations are generally in the best position to determine the type of assistance that is appropriate. For example, immediately following a devastating flood, a family may be in need of food, clothing, and shelter, regardless of their financial resources. However, they may not require long-term assistance if they have adequate financial resources. Individuals who are financially needy or otherwise distressed are appropriate recipients of charity. Financial need and/or distress may arise through a variety of circumstances. Examples include individuals who are: n temporarily in need of food or shelter when stranded, injured, or lost because of a disaster; n temporarily unable to be self-sufficient as a result of a sudden and severe personal or family crisis, such as victims of violent crimes or physical abuse; n in need of long-term assistance with housing, childcare, or educational expenses because of a disaster; and, n in need of counseling because of trauma experienced as a result of a disaster or a violent crime.

What is meant by charitable class?

charitable class is a group of individuals that may properly receive assistance from a charitable organization. A charitable class must be either large enough that the potential beneficiaries cannot be individually identified, or sufficiently indefinite that the community as a whole, rather than a pre-selected group of people, benefits when a charity provides assistance. For example, a charitable class could consist of all individuals located in a city, county, or state. This charitable class is large and benefits to it benefit the entire geographic community.

If the group of eligible beneficiaries is more limited, such as employees of a particular employer, the group of individuals eligible for disaster assistance (the class) must be indefinite. Otherwise, the charitable class would consist of a pre-selected group of people, which is prohibited. To benefit an indefinite charitable class, the relief program must be open-ended and include employees affected by the current disaster and those who may be affected by a future disaster. In this situation, the total number of potential members making up the charitable class cannot be counted or identified. Thus, while it may be possible to identify the employees who were victims of a present disaster (which is prohibited as pre-selection), it is not possible to identify employees who could be affected by future disasters. Accordingly, if a charity follows a policy of assisting employees who are victims of all disasters, present and future, it would be providing assistance to an indefinite charitable class.

Specific Instructions for Form 1099-NEC

File Form 1099-NEC, Nonemployee Compensation (NEC), for each person in the course of your business to whom you have paid the following during the year:

·             At least $600 in: 

1.       Services performed by someone who is not your employee (including parts and materials) (box 1);

2.       Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish (box 1); or

3.       Payments to an attorney (box 1). (See Payments to attorneys, later.)

Specific Instructions for Form 1099-MISC

File Form 1099-MISC, Miscellaneous Income, for each person in the course of your business to whom you have paid the following during the year:

·             At least $10 in royalties (see the instructions for box 2) or broker payments in lieu of dividends or tax-exempt interest (see the instructions for box 8).

·             At least $600 in:

1.                 Rents (box 1);

2.                 Prizes and awards (box 3);

3.                 Other income payments (box 3);

4.                 Generally, the cash paid from a notional principal contract to an individual, partnership, or estate (box 3);

5.                 Any fishing boat proceeds (box 5);

6.                 Medical and health care payments (box 6);

7.                 Crop insurance proceeds (box 9);

8.                 Payments to an attorney (box 10) (see Payments to attorneys, later);

9.                 Section 409A deferrals (box 12); or

10.              Nonqualified deferred compensation (box 14).

Once more piece of the puzzle:

IRS publication 525 describes taxable and nontaxable income and includes the following:

Gifts and inheritances. In most cases, property you receive as a gift, bequest, or inheritance is not included in your income. However, if property you receive this way later produces income such as interest, dividends, or rents, that income is taxable to you. If property is given to a trust and the income from it is paid, credited, or distributed to you, that income is also taxable to you. If the gift, bequest, or inheritance is the income from the property, that income is taxable to you.

John F Heveron, Jr. Principal

Heveron and Company CPAs

1099s for Consumers?

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