When to issue a 1099 vs a W-2G

The latest view on not-for-profit accounting issues

Form 1099 is the miscellaneous income tax form used to prepare and file income information that is separate from wages, salaries or tips. For nonprofits, you must issue this form when you contract individual workers and vendors to complete work for the organization. Form W-2G, Certain Gambling Winnings, is issued to report gambling winnings and any federal income tax withheld on those winnings. So when do you use 1099 vs a W-2G?

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Let’s check out some of the key components of the 1099-Misc. and W-2G.

Issue a 1099-Misc. when:

  • The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.
  • A 1099-misc. must be filed if the following four conditions are met:
    • The NFP made the payment to someone who is not their employee.
    • The NFP made the payment for services in the course of their nonprofit organization.
    • The NFP made the payment to an individual, partnership, vendor or estate.
    • The NFP made payments to the payee amounting to at least $600 during the year.
  • NFPs should remember that attorneys who are single member LLC’s or sole proprietors and earned more than $600 for services performed during the year are required to be issued a 1099-MISC.
  • NFPs should note that they don’t need to issue a 1099 in the case of scholarships or fellowship grants because these funding sources are considered wages and are reported on IRS Form W-2.

Issue a W-2G when:

  • An NFP must report raffle prizes on a W-2G if:
    • The amount paid reduced, at the NFP’ option, by the wager (the amount a person paid for the chance to win a prize) is $600 or more;
    • The payout is at least 300 times the amount of the wager. The NFP uses Form W-2G for this report.
  • The NFP must file Forms W-2G with the IRS by the last day of February of the year after the year of the raffle.
  • If the winnings are more than $5,000, the NFP that pays raffle prizes must withhold 25% from the winnings and report this amount on Form W-2G.
  • For noncash prizes, the winner must pay the NFP 25% of the fair market value of the prize minus the amount of the wager.
  • If the NFP, as part of the prize, pays the taxes required to be withheld it must also pay tax on the taxes it pays on behalf of the winner (aka grossed up prize). The organization must pay withholding tax of 33.33% of the prize’s fair market value. The organization reports the grossed up amount of the prize (fair market value of prize plus amount of taxes paid on behalf of winner) in box 1 of Form W-2G and the withholding tax in box 2 of Form W-2G.

If you have any questions on using a 1099 vs a W-2G, contact your Henry+Horne advisor.

Stephanie Turner