Non Profit hiring a person to teach

[ScienceGuy]

We are a non-profit based off Northern Virginia who educates youth in the area of STEM. As of now we would like to provide some advanced specialized education to children. A person is willing to teach the kids for a negotiated fee. So we are going to ask the kids who are members of our organization to pay our Non-profit first and then we will be paying that teacher in turn. This teacher is not part of the organization and is an independent contractor, who is responsible for her taxes.

Question is, this is an okay transaction tax wise right? Also are we supposed to send something to IRS against the teacher's tax id? Or is it like a normal transaction where we pay a service from any other company?

 

[Taxing Matters]

We are a non-profit based off Northern Virginia who educates youth in the area of STEM.

Being a "nonprofit" means nothing in terms of federal taxation. Either the organization is subject to income tax or it is a tax exempt organization. If it is a tax exempt organization then it matters what kind of tax exempt organization it is. If it is tax exempt under IRC § 501(c)(3), which are charitable, religious, educational and scientific organizations then of course you must ensure that your funding and your activities all support the exempt purpose of the organization.

As of now we would like to provide some advanced specialized education to children. A person is willing to teach the kids for a negotiated fee. So we are going to ask the kids who are members of our organization to pay our Non-profit first and then we will be paying that teacher in turn. This teacher is not part of the organization and is an independent contractor, who is responsible for her taxes.

Assuming it is a § 501(c)(3) organization and that this activity is part of the organization's exempt purpose then this should not be a problem. If the instructor is truly an independent contractor then the organization will need to provide the instructor with a Form 1099-NEC at the end of the tax year to report the amount the organization paid the instructor. The Form NEC is new for 2020; nonemployee compensation in previous years was reported on Form 1099-MISC. That means that the organization will want to get from the instructor the information needed to file the Form 1099-NEC using a Form W-9. It is very important that you ensure that the instructor is truly an independent contractor rather than employee. You'll have different obligations if he/she is an employee. For more on that see the IRS page Exempt Organizations: Independent Contractors vs Employees.

 

[ScienceGuy]

We are 501(c)(3) Federal non-exempt with a mission to teach students about advance STEM. So it is covered under our mission.
Thank you very much for the detailed explanation.

 

[adjusterjack]

Pay particular attention to the distinction between employee and independent contractor. Just calling somebody an independent contractor doesn't necessarily mean that he is one.

 

[ScienceGuy]

Thank you very much. We are a very small non-profit, and do not have any employees. We have only board members and volunteers. So do we have to verify his credentials before hand? Or do we have to verify if he is an employee else where?

 

[Taxing Matters]

Thank you very much. We are a very small non-profit, and do not have any employees. We have only board members and volunteers. So do we have to verify his credentials before hand? Or do we have to verify if he is an employee else where?

Well, I imagine that you'd want to verify his credentials ensure he is the expert you think his before you hire him. But that's not a tax issue.

But you do need to know whether he qualifies as an independent contractor rather than employee for federal tax purposes. In general whether a person is an employee depends on the degree to which you have control over how the person does his job. The link I provided earlier has some general information on that, but for a more detailed discussion of the difference between employees and independent contractors, see IRS Publication 915-A chapters 2 and 3.