Should Volunteers Receive an IRS Form 1099-MISC?
By Angela Dorn, CPA
Most people are aware that if a person or company (other than a corporation) performs services for a nonprofit organization and is not an employee of the nonprofit organization, an IRS Form 1099- MISC would be issued by the nonprofit organization to the individual or entity and filed with the IRS on or before January 31 of the next year. But what some may find surprising is that volunteers of nonprofit organizations may also be the recipient of an IRS Form 1099-MISC at year-end.
How is that possible? Generally, a volunteer is a person who does not have a profit motive (i.e., where the value of services exceeds the benefits received). However, sometimes volunteers receive stipends, benefits, small fees or reimbursements for expenses. As long as the value is under $600 per year, the nonprofit organization is not required to issue an IRS Form 1099-MISC. The income may still be required to be reported by the taxpayer on their tax return.
Some volunteers receive a stipend, which is an amount of money given to cover expenses. These may or may not be considered as taxable income. For example, stipends are not considered to be taxable if they are paid for education-related expenses or college tuition within certain limits.
Benefits received may be taxable to the volunteer. Nonprofits often look for ways to thank their volunteers. These benefits should be a nominal amount. An appreciation party with food and drink would be an example of a nominal gift. However, if cash gifts or gift cards are handed out, these would be taxable to the volunteer. Again, if it is less than $600, it would not be reported to the volunteer on the IRS Form 1099-MISC but would still be considered income taxable to the taxpayer.
Now, let’s talk about payment for expenses.
Nonprofit organizations can either have an accountable or non-accountable expense reimbursement plan. An accountable plan means the nonprofit organization follows the IRS rules for reimbursements, and the volunteer does not report the reimbursement as income. The expense must have been incurred for the nonprofit organization’s business purpose. The volunteer must account to the organization for the expense in a timely manner (generally no more than 60 days after incurred), and amounts received that are greater than the expense incurred must be returned in a reasonable amount of time (generally no more than 120 days after the money was received). If the volunteer received the funds in advance of the expense, the funds should normally not be given more than 30 days in advance of the expense being incurred. Unused funds should be returned no more than 120 days after the event.
If the nonprofit organization has a nonaccountable plan, any amounts received would be subject to tax. Volunteers may receive an IRS Form 1099-MISC if the amounts are more than $600 at year-end, and it will be up to the volunteers to deduct the related expenses on Schedule A of their own tax returns. Again, records will need to be retained for proof of the expenses. The volunteer’s responsibility is to retain documentation of what was expended. This includes the ability to show what was purchased, how much it cost, and from whom.
Receiving an IRS Form 1099-MISC often comes as a surprise to taxpayers. This may be especially true if the taxpayer was a volunteer for the organization. The organization must have information from the taxpayer to complete the IRS Form 1099-MISC including name, address, and social security number or Employer Identification Number. If the volunteer is asked to provide this information, chances are the volunteer may be required to receive an IRS Form 1099-MISC.