Can a nonprofit organization such as the Legion, have employees and only use a 1099 or do they have to be taxed? – Christy


Yes … and yes. Any organization, non-profit or not, may have both employees as well as contractors. The IRS actually has a publication, 1779, that distinguishes independent contractors from employees. Employees typically receive a W-2 while independent contractors receive a 1099. In either case, the recipient is required to report the income and pay the appropriate income taxes. However, an independent contractor may file a Schedule C (which shows the business income and deductible expenses) or the appropriate tax form given how they have set up their particular business (i.e. corporation or partnership) while an employee would typically just use the standard Form 1040.