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Any independent contractor or vendor who is not incorporated (or treated as a corporation for tax purposes) and who is paid $600 or more for services in a calendar year must be issued a IRS Form 1099 NEC by January 31. Any independent contractor or vendor who was paid less than $600 for services and requests a 1099 NEC be issued must be provided one.

Exceptions include:

• Payments of $600 or more to a lawyer/attorney must be reported, regardless of whether the lawyer/firm employed is incorporated.
• Payments made via a financial payment processor (such as PayPal) do not require a 1099 NEC as the payment processor will issue a 1099K.
• Payments to other tax-exempt organizations do not require a 1099 NEC.

PTAs should request a Form W-9 (Request for Taxpayer Identification Number) from any contractor or vendor they expect to pay $600 or more for services in a calendar year. The W-9 will indicate if the contractor/vendor is incorporated (or treated as an incorporation for tax purposes) and therefore if a 1099 NEC may be required. PTAs do not need to request a W-9 from vendors providing goods or merchandise.

PTA must report individuals who are independent contractors to the California EDD on Form DE 542, Report of Independent Contractor(s), within 20 days of making payments of, or entering into a contract for $600, or more within any calendar year.

The EDD may assess a penalty for each failure to comply with the required time frames. A penalty per instance may also be assessed for failure to report independent contractor information. To obtain Form DE 542 visit EDD website at www.edd.ca.gov.

Failure by an employer to pay taxes due or to withhold required amounts from an employee’s wages can result in substantial penalties to the employer. Refer to the current IRS Publication 15, Circular E, Employer’s Tax Guide and the current California Employer’s Tax Guide for detailed information regarding penalties.

Penalties may apply if the PTA:

• Does not make required deposits on time;
• Does not make deposits at an authorized financial institution; or
• Pays with the return (amounts that may be paid with a return are limited).

Penalties may apply for each whole or part month if IRS Form 941, Employer’s Quarterly Federal Tax Return is not filed when required, disregarding any extensions of the filing due date.

The PTA may make advance Earned Income Credit (EIC) payments to employees that submit IRS Form W-5. If the PTA does not do this, it is subject to a penalty equal to the amount of the advance EIC payments not made.

A penalty may be imposed if the PTA fails to file (on paper or on electronic media) an Information Return (IRS Forms W-2 and 1099-MISC) or files with incorrect information. A PTA that fails to withhold or pay over any tax withheld is guilty of a misdemeanor and the responsible party or parties may be imprisoned and/or fined.

If the PTA is an employer, it must follow rules set up by the IRS, Social Security Administration, and the California Employment Development Department (EDD).

Employers must:

• Make timely payroll withholding deposits;
• Make quarterly federal and state payroll withholding reports within one month of the close of each payroll quarter, using IRS Form 941 and State Form DE-6;
• Issue IRS Form 1099-NEC to all independent contractors by January 31, if the PTA pays $600 or more during the calendar year to any unincorporated business or person for services rendered or in payment for a grant, award, or scholarship; Form 1099-NEC is not required to be issued to corporations or to those paid less than $600;
• Issue IRS Form W-2 to payroll employees by January 31 for the previous calendar year;
• Report IRS Form 1099 and Form W-2 information to federal and state agencies as well as the Social Security Administration by February 28 for the previous calendar year, using IRS Form 1096 (Annual Summary and Transmittal of US Information Returns); and
• Report individuals who are independent contractors to the California EDD on State Form DE 542, Report of Independent Contractor(s) within 20 days of making payments of or entering into a contract for $600 or more within any calendar year.

Financial records should be put in order for the financial review process shortly before the end of the term of office. The financial review must be completed as quickly as possible. The outgoing treasurer cannot pay bills after the books are closed for financial review or after the term of office ends. Upon assuming office, the incoming treasurer may deposit funds in the PTA bank account and pay authorized requests for reimbursement bills as needed but should avoid paying new bills if possible until the review is complete.

The outgoing treasurer is responsible for preparing the Annual Financial Report, ensuring all tax forms are filed, uploading financial reports and tax returns to the document retention system, preparing a Treasurer’s Report from the last association meeting to the end of the term, and compiling a list of payments made between January 1 and June 30 that are subject to 1099 and Workers’ Compensation reporting. See Records Retention Schedule and Destruction Policy.