A Simple Way to Distinguish Contractors’ Pay from Reimbursements

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Many arts organizations will have artists as well as other vendors that need not only payment for their service fees, but also will incur various reimbursable expenses while providing their contracted services.

Artists performing for you but who are based in other cities will have travel expenses. Even if airfare, hotels, and rental cars are paid directly by the producing organization, expenses like rideshares or gas for the rental car, and checked baggage fees, might be paid by the guest artist out of pocket during their work period for your organization.

An outsourced bookkeeper may pay some registration fees on your behalf.

A graphic design vendor may purchase stock images, or a PR consultant may place ads.

There are two ways to handle making the distinction. The first is simply not to make a distinction, and include both the fee payments and reimbursements in the total non-employee compensation reported on the Form 1099 issued to each vendor. The vendor can then pursue credit for those business-related expenses when they prepare their income tax return after the end of the year.

Disclaimer: What is a blog post about a legal topic without a disclaimer? This is not legal advice. You should not be getting your legal advice from a blog post. The purpose of this post is to give you things to think about before taking action. Speak to an accountant and/or a lawyer about specifics.

One Vendor, Two Records

The other approach is to make such a distinction in your bookkeeping system so that the Form 1099 only includes actual compensation. And this approach isn’t that much more work for the bookkeeping function.

First, create two vendor records for each vendor who will have reimbursable expenses, whether an artist or any other type of non-employee person. Your accounting system generally won’t let you have the exact same vendor name for two records, so either simply add an asterisk or other unobtrusive punctuation mark at the end of the second record (“Yo-Yo Ma” and “Yo-Yo Ma*”) or be literal about it and add the word “reimbursement” to the end of the vendor name in the second instance (“Yo-Yo Ma” and “Yo-Yo Ma – reimbursement”).

Then, use the unadorned vendor record for service fees and contract payments, and the other for reimbursable expenses. And importantly, configure the second instance not to track payments for 1099 purposes.

On Per Diems

There is one wrinkle to what should post to the vendor record for fees and the corresponding vendor record for reimbursements.

If you provide per diems to your guest artists, you likely pay a standardized amount for each day they of their service period for your organization, and do not require receipts or expense reports to substantiate meals and incidental purchases. In those instances, the per diem amount should be included in total non-employee compensation (via the vendor record for fees), since in a strict sense, it is not reimbursing anything, but rather functions more like a stipend.

About Eric Joseph Rubio

AvatarEric Joseph Rubio is a nonprofit and arts management professional originally from Chicago, and now based in Washington, DC. He has served in staff and leadership roles with churches, schools, and arts organizations in the Chicago, South Florida, and Washington, DC areas. Eric is a proud alumnus of the Wheaton College (IL) Conservatory of Music, and is an occasional freelance writer across a variety of platforms. Follow Eric on Twitter and Instagram at @TheRubioRoom, and visit his website ericjrubio.com.

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