A form 1099-MISC communicates to the IRS and the recipient the amount of money your organization paid to the recipient during the year. NOTE: the proper form to send to independent contractors is now a 1099-NEC! More on that new form below.
Churches are not exempt from filing 1099s!
NOTE: Starting in January 2019, "employer 1099s face intense scrutiny. A primary reason is that the IRS’ believes that there is a lot of underreporting by independent contractors (ICs) that results in their not paying enough income tax." ...excerpt from AIPB, American Institute of Professional Bookkeepers, Jan 2019 Issue.
Your church or nonprofit organization should send an IRS Form 1099-NEC to independent contractors...
that you paid amounts $600 or more in payments for service to your organization. (See below for comments from an IRS agent regarding this subject.)
Note: when your church hires someone to perform services such as janitors, secretaries, nursery workers, etc., they are not usually considered independent contractors.
They are most likely considered employees and should be
issued W-2s. One of the biggest errors churches can make is incorrectly classifying an individual. See this article on Misclassification of Workers.
See this page on the IRS site for more clarification on that issue:
Independent Contractor (Self-Employed) or Employee?
Generally an independent contractor is a person over whom you do not exercise financial and behavioral control.
If you do determine an individual is an independent contractors, payments for services go in box 1 on the new 1099-NEC form.
Some examples of independent contractors may include: repairmen, accountants, cleaning services, and lawn care services.
Revival ministers, supply preachers and guest speakers are usually classified as independent contractors and should be issued a 1099-NEC if the total paid to them in the year was $600 or more.
You do NOT send 1099s to:
You should not pay an independent contractor until you have received a completed and signed W-9.
Use Form W-9 "Request for Taxpayer Identification Number and Certification" to obtain names, address, and taxpayer identification numbers (SSN or FEIN) from people you will be required to provide form 1099-NECs.
Have all independent contractors fill out a W-9 even if you think they are incorporated. If they are, there is a place on the W-9 for them to indicate they are incorporated.
Note: Churches should require all guest speakers to complete a W-9 and then keep that completed W-9 on file ... even if they do not believe they will be required to send them a 1099.
The Church Accounting: How To Guide devotes a whole section of the book to payroll for churches. It covers payroll terminology and forms and then takes you through the steps necessary to set up a payroll, calculate and file the necessary taxes and forms, and even details how to handle the minister's payroll. It also includes sections on filling out IRS forms: 1099, 1099-NEC, and 1096.
If you have QuickBooks or are considering using it in the future, go ahead and purchase the QuickBooks for Churches and the How To Guide combo for a complete package on setting up and administering a payroll using QuickBooks.
The period for which you report payments is the calendar year, not your fiscal year. The 1099-NEC form must be “furnished to recipients” and to the IRS by January 31! That due date applies to paper and electronic filings!
Form 1099-MISC must be filed by March 1, 2021, if filing on paper, or March 31, 2021, if filing electronically.
You cannot download a usable 1099 from the web!
The original that’s filed with the IRS is printed in red ink and is read by a scanner.
You can order forms from the IRS at no charge, or purchase them from an office supply store. You can reach IRS at 1-800-TAX-FORM to request the ones you need.
Make sure to get the transmittal form too...if filing by paper! It is Form 1096. Form 1096 is the cover page for the 1099s that will be submitted to the IRS (manually not electronically!). The 1096 summarizes the total payments included on all of the 1099s. Click here to view instructions for the IRS form 1099.
Your Pastor's compensation should NOT be reported on a 1099-NEC as ministers are usually considered employees of their churches! (There are instances where you MIGHT be able to report a minister's compensation on a 1099, but do not make that determination on your own. Consult a knowledgeable CPA!)
If you are eligible to report a minister's compensation on a 1099 DO NOT include their housing allowance payments!
Electronically filing 1099s are the easiest way to file 1099s! If you efile your 1099s you can skip the 1096 form, but be aware that you will pay a fee to electronically file your 1099s with one of the IRS recommended vendors. See IRS Pub 1220.
If you want to DIY your payroll, I highly recommend you look at using Gusto! It is very user friendly and their support is awesome! Plus they know how to set up and maintain payrolls for churches and nonprofit organizations.
Note: I am a "partner" of Gusto, but as I have told you before ... I never recommend anything that we or our clients have not tried and love =)