I am the administrator of a not-for-profit private school and our school librarian (volunteer) is paid a small stipend for operating the school library during scheduled student visit time. The stipend is a minimal amount and is given to the volunteer school librarian to assist in her paying for her son's school tuition. This amount is paid through our payroll system and is paid without anything taken out for taxes etc. At the end of the year the librarian is given a 1099 to declare the income from this stipend. The amount of the stipend is equal to or a little more than the cost of your son's total school expense. My question is... Are we (the school) violating any tax laws that would prevent us from paying our volunteer librarian this stipend? I know our HR department maintains the same required information on this person as they do on any other employee but we consider the librarian a volunteer that receives a stipend for helping at the school.

Well, it seems that you are considering the librarian as an independent contractor and hence you are paying her a 1099-Misc for an amount that is a small stipend! Clearly, it seems that you have complied with the reporting of this income to the IRS in the form of a 1099-Misc, but, your question is more towards the legality of reporting her in this manner as opposed to including her income on the W-2.

There are elements of the librarians work that would help classify her as an independent contractor and these would support your case to consider her as a 1099-Misc contractor. But, clearly, there are some elements of the librarians working for your organization that would not support your case. However, if the amount happens to be a small stipend as you say, I would not be overly concerned in 2009.

But, to be safe please review the following link below to determine whether or not you can satisfy the IRS litmus test for classifying your employee(librarian) as an outside contractor/independent contractor. If it seems that you do not meet the tests, in 2010 I would report her income as a W-2 employee, the reason being that the IRS is getting very strict in this area and scrutinizing a lot of companies that are reporting employees incorrectly as 1099-Misc income. The consequences is of incorrectly reporting employees is potential penalties and interest related to not paying the payroll taxes applicable to the income reported on the 1099-Misc on a timely basis.

Will your employee's status as an outside contractor pass the IRS litmus test?

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Okay based on the IRS litmus test, I would say that this volunteer librarian should be receiving her stipend as a W-2 employee verses a 1099-Misc. This employee (volunteer) puts in time in the library over and above the hours required of her. The stipend (W-2 reported) covers only a small percentage of the time spent helping run the library. So my question looks like this:
If the librarian puts in time both for pay and as a volunteer and receives a paycheck twice a month (@$250.00 per pay period) for the months of September - June (grand total payroll of $5000.00) and the work hours require her to be in the library when the students visit (2 to 3 hours per day), will we be violating any tax laws or minimum pay requirements?

And thanks for the info!