The first step is to determine whether the person is an independent contractor or an employee to the PTO--their status to the school as an employee isn't necessarily relevant. The IRS does have some good info on its website, but I think this article is a pretty good summary.
www.wwwebtax.com/general/independent_contractor.htm

If you assume for a minute that it's a pretty cut and dried case that the person is an independent contractor, then in the perfect world you should write up an agreement with the person and provide them with a W-9 form before their class starts. Pay them however your agreement says they are supposed to be paid, after you are sure you have their W-9. At the end of the year, before you distribute your 1099, I think it's a good idea to contact the person and review their 1099 info with them before you submit it. This is an extra step that's not really necessary, but corrected 1099s are a major pain to file. File the 1099, preferably with a service that does it all electronically and handles the filing of the 1096 form that needs to go with it; I like www.filetaxes.com .

If they're not an independent contractor, then it's more complicated, and somewhat dependent on state laws. But generally you have to go through the following steps--
-have the person complete an I-9 form, which usually requires you to look at documentation determining their citizenship, like a passport, drivers license, birth certificate
-register as an employer with the state, which will generally get you set up for state withholding
-determine whether your state has requirements for reporting new hires, and report them as necessary
-calculate the employee's pay after deducting for things like Federal, state and local withholding
-file state and Federal unemployment tax returns and possibly pay Federal an d state unemployment tax
-file regular withholding tax returns at the Federal and state level, probably quarterly with an annual reconciliation
-possibly be required to purchase workers compensation insurance
-probably some more things that aren't coming to me off the top of my head

That's a pretty scary list! If a PTO finds itself in a situation where a school employee is providing the after school program, and determines that the person should be treated as an employee, not an independent contractor, it would be worthwhile to have a conversation with the school district. Perhaps it could be worked out where the district paid the person for the time on the district payroll system, and then the PTO worked out a reimbursement arrangement with the school system.

Disclosure--Technically I'm 'retired,' and no longer licensed to practice.

Is there an practicing CPA on this board who could summarize the tax process (W-9, 1099 etc.) for paying a teacher in our school over $600 a year for an after school activity which he or she does, but is NOT an activity as a school employee? We are facing a similar situation as the original poster, megjul. Thanks so much!

I wouldn't just talk to his accountant; I'd get one for yourself. When it comes to hiring employees/contractors, there are serious real-world concerns. Things like tax witholding and worker's comp payments and the like.

Most PTOs are not employers, and I think that most PTOs don't need an actual accoutant. But if you're employing people to the point where you need a W2 or 1099, then i'd have help on my side.

Tim

You might want to try talking directly to his accountant to get his take on the belief that the PE teacher should get a W-2 versus a 1099. It seems strange that the PE teacher's accountant is telling the PE teacher one thing, and the advice you're getting is different (although you don't say by whom you're being advised). The accountant may be missing some critical details. For example, maybe what the teacher told his accountant was that he agreed to work some extra hours at school for an extracurricular activity--probably doesn't really tell the whole story.

You want to make the case that the PE teacher is an independent contractor to the PTO, so some of the key questions for which you want to have answers ready are:
--who designed the curriculum for this program?
--who approved the curriculum, and what was the approval process?
--who provides the supplies/equipment for the program?
--does the teacher provide the same program to anyone else (like at another school), or, if he doesn't, could he do that if he wanted to?
--does the PE teacher have to submit a time sheet of some sort to you?
--is the PE teacher paid a set fee for the whole program (i.e. $500 for a 10 week program with no more than 8 kids)?

Depending on the answers to those questions, you might change the accountant's mind. Or, maybe not--the PE teacher may well be an employee, at which point it's going to be very messy to correct this. I would strongly suggest that you get an accountant to help with that, because you would need to file a corrected 1099 and, depending on your state, go through a bunch of paperwork to get set up as an employer.

Going forward, one way to avoid this would be to have a written contract with anyone who provides afterschool programs so payment terms are clear. Independent contractors should be given a W-9 form at the front end as part of the contract process, which makes everyone think about tax implications before they even start.

Sorry - I don't have any easy answers for you. However, I can tell you that your 501(c)(3) status has no bearing. Charitable organizations hire employees all the time (W2). The question of whether a worker is considered an employee (and gets a W2) or a contractor (and gets a 1099) is based on how much control the paying organization has over how the work is done. The IRS has quite a bit of information on this on their website. You might start with www.irs.gov/charities/article/0,,id=128602,00.html .

Hopefully others on the Message Boards can give you more specific advice.

My PTO board is coming across a very difficult situation. We have an after school program that is run through the PTO by the P.E. teacher. Now that we have become 501C, we sent him a 1099 form. He is insisting that he should get a W-2 form like an employee would. We are saying no. As a 501C organization, we should not give W-2 forms, nor are we set up to do so. We do not have employees. He has gotten info from his accountant saying that he should get W-2, and all the advice we have gotten says no.

Has anyone had experience with this kind of mess?

Please help.