Our nonprofit sponsors a tour of musicians. Do we have to take out Social Security and taxes, or may we simply pass the honorarium along to them?
This issue tends to be a “hot button” for the Internal Revenue Service when it audits musical organizations. With a rare exception for a noted independent talent, the IRS takes the position that the musicians are employees of the sponsoring group and not independent contractors. It expects that you will have withheld and given the musicians a W-2.