In prior years when you paid $600 or more to individuals and unincorporated businesses for services, you were required to issue a form 1099MISC. That form still exists and must be used for certain payments, such as rents, royalties, and other income, but form 1099NEC generally replaces that form for services that are provided to your organization by nonemployees.
NEC stands for nonemployee compensation, and the form is required when you are making payments to an attorney and when you are making payments of $600 or more to an individual or unincorporated business, for services provided.
We often get questions about whether payments to clients or needy individuals are required to be reported on either of these forms. First, it is important to understand that IRS requires these forms so that they can do income matching. If income is reported on one of these forms, IRS will look for it on an individual or other tax return. So, payments that are not income are not required to, and should not be reported on either of these forms. For the same reason, other businesses are not required to issue 1099 forms to charities.
IRS publication 525 describes taxable and nontaxable payments and includes the following:
Gifts and Inheritances. In most cases, property received as a gift bequest or inheritance is not included your income.
IRS’ website also describes aid to individuals, stating that 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.
These payments and services are unilateral or nonreciprocal transactions, because no services are being provided in return. So, no income reporting is required.
John F Heveron, Jr. Principal, Heveron and Company CPAs, Rochester NY