Tax Reporting Forms for Non-Payroll Payments
Tax Reporting Forms
The type of tax reporting form the payee receives at the end of the calendar year depends on the classification of the payee, as well as the reason for the payment.
Services Performed by Employees
Payments to employees processed through Payroll will result in a Form W-2 if the employee is a U.S. citizen or a resident alien for tax purposes. A Form 1042-S will be issued if the employee is a non-resident alien.
Services Performed by Employees
Payments for services performed by employees usually must be processed through Payroll.
- Exceptions:
- Employees who are research participants can be paid directly for their participation.
- Employees performing services clearly unrelated to their regular employment (e.g., providing an occasional musical performance in addition to employment teaching engineering classes) can be paid directly for the non-employee service.
Payments to employees that qualify for one of the exceptions above will result in a Form 1099-NEC if the employee is a U.S. citizen or a resident alien for tax purposes. A Form 1042-S will be issued to non-resident aliens, regardless of whether they are claiming tax treaty benefits.
Services Performed by Non-Employees
Independent contractors performing services are paid on a Supplier Invoice, rather than through Payroll. A Form 1099-NEC is provided to U.S. citizens and resident aliens, and a Form 1042-S is provided to non-resident aliens.
Services Performed by Entities
Payments to domestic corporations, government entities, or not-for-profit entities are not subject to tax reporting, except for medical and legal services. Other domestic entities will receive a 1099-NEC for reportable services. Foreign entities will receive a 1042-S for services performed in the U.S., regardless of their corporate, government, or not-for-profit status.
Exceptions to Tax Reporting Requirements
Services performed in the U.S. are subject to tax reporting, unless performed by an entity that is exempt from reporting as described above. Services performed outside the U.S. usually are reportable unless the payee is non-resident alien or foreign entity.
Prizes, Gifts, and Awards
Prizes, gifts, or awards given to an individual or entity are subject to tax reporting. US Persons, US entities, and resident aliens will receive a 1099-MISC. Foreign persons, non-resident aliens, and foreign entities are subject to 30% withholding and would receive a 1042-S.
Payments to Research Participants
Payments to individuals for research participation are subject to tax reporting as Other income. US Persons and resident aliens will receive a 1099-MISC. Foreign persons, non-resident aliens, and foreign entities are subject to 30% withholding and would receive a 1042-S.
Disclaimer: The information above is not intended as legal advice. Please refer to www.irs.gov for additional information. Iowa State University does not provide assistance with the preparation of tax returns.