Do Coronavirus Relief Fund Subrecipients Require 1099 Forms?
As Coronavirus Relief Fund (CRF) recipients start preparing for the upcoming tax season, many payers/prime recipients are wondering if they will be required to prepare 1099 forms for CRF subrecipients or any nonfederal entity, e.g., small business, county, city, nonprofit, etc., that receives a subaward from a pass-through entity to carry out a federal program.
Currently, there is no specific guidance from the U.S. Department of the Treasury on the necessity of a 1099 specifically for CRF dollars. That being said, a prime recipient should consider other available guidance related to filing requirements.
State and local grants are ordinarily taxable for federal income purposes, and federal grants are taxable unless stated otherwise in the legislation authorizing the grant. According to the IRS’ CARES Act frequently asked questions page, a business’s receipt of CRF awards generally is not excluded from gross income and therefore taxable. As such, it appears the prime recipient has a reporting obligation on Form 1099-G if the amount is above $600 and paid to a noncorporation, such as a small business, nonprofit organization, and city or county government agency.
Therefore, absent any official IRS guidance to the contrary, any unit of a federal, state, or local government making payments of taxable grants would need to consider filing 1099-Gs to avoid penalties for failure to file (Internal Revenue Code Section 6721) or failure to furnish (§6722).
The IRS website provides Form 1099 General Instructions with basic information, including electronic filing, where to file paper forms, what’s new for 1099 forms this year, and more. The IRS also provides specific instructions for individual forms, such as the 1099-G, as well as the forms themselves. Be sure to read through and follow all the instructions carefully to stay in compliance and avoid penalties.
Remember, Form 1099 reporting requirements vary based on the tax classification of the recipient, so CRF recipients may need to issue Form 1099-G to some recipients, but not to others. In general, all economic relief payments to for-profit, nonincorporated businesses, e.g., sole proprietors, individuals, partnerships, etc., should be reportable as taxable grants. Accordingly, nonprofit organizations and government entities would generally be exempt from receiving 1099 forms.
When in doubt, contact the granting agency for specific instructions on how to handle tax forms. Many states have released instructions for reporting payments with a Form 1099. To see if your state has such guidance, check out your state’s website or contact your department of revenue.
With numerous types of Form 1099 and other informational forms used to report various kinds of income, it can get confusing. BKD is here to help. Read our recent BKD Thoughtware® article for a link to a short summary of the most common nonwage information returns used.
For more information, reach out to your BKD Trusted Advisor™ or fill out the Contact Us form below.