Part 7, Section B of the Form 990 asks you to list the organization’s five highest compensated independent contractors. It sounds simple enough, but here are some questions that might come up:
What do they mean exactly by independent contractors?
Independent contractors provide SERVICES, not merchandise or goods.
Would this only include those that the organization filed a Form 1099 for (under the current rules for 1099’s)?
Not necessarily. Currently, Forms 1099 are not required to be filed for organizations that are incorporated (inc.’s). But for purposes of the 990, you would include payments to any service provider.
What about rent?
You should include any 1099 amounts in this Section of the 990, which means rent is included (1099’s are required to report rent paid).
What about health insurance?
It is my understanding that health insurance premiums would not be considered a service and would not need to be reported in this section of the 990.
What about investment fees paid to a large brokerage firm?
Yes, fees paid to large brokerage firms would be included in the Form 990.
What if my organization pays fees for services performed by an individual?
Section B should include both individuals and companies. You may want to read IRS Publication 1779 which describes when an individual should be classified as an employee versus an independent contractor.
One important point to remember is that you only have to list the 5 highest to whom you paid more than $100,000. For a lot of nonprofits, this means that Section B will be blank.
For more information on Forms 990 and Tax Exempt Organization Accounting, feel free to contact a Henry+Horne tax professional. Or check out the wide variety of tax services we can provide to you to make your life easier.
By Colette Kamps, CPA