As another year comes to a close, there are many important things that need to be wrapped up before the end of the year. For your church, your to-do list must include year-end payroll duties. 

Beginning with the 2020 tax year, the IRS will require churches to report nonemployee compensation on the new Form 1099-NEC instead of on Form 1099-MISC. Churches will need to use this form if they made payments totaling $600 or more to a non-employee, such as an independent contractor.

Most ministers are treated as dual-status employees and would receive Form W-2 (if the minister is an employee of the church). Compensation paid to secular staff would also be reported on Form W-2.

The church would file Form 1099-NEC for income paid to a minister for pulpit supply, guest speaker, weddings, baptisms or other non-employee services (only if the minister is not an employee of the church). 

When you figure out what reporting forms you must file, don’t forget the cleaning lady or lawn service guy you hire as contractors to keep your church looking spiffy.

If you pay them $600 or more during the calendar year, you must file either a Form 1099-NEC (for nonemployee compensation) or Form 1099-MISC.

All businesses and organizations — including churches — are considered reporting entities and must file 1099s to notify the IRS of income that should appear on the recipients’ income tax returns. The IRS enforces the 1099 filing responsibility because unreported income costs the government billions of dollars in lost tax revenue every year.

Form 1099-NEC is the most commonly used for contractors. Nonemployee compensation is defined as payments made to Sole proprietor and single-member LLC businesses and/or individuals who are not church employees for services.

Some examples of independent contractors include:

• Repair workers
• Cleaning services
• Lawncare services
• Pulpit Supply
• Guest speaker
• Guest musicians

Churches do not need to send 1099 forms to:

• Nonprofit organizations and other churches.
• Independent contractors paid electronically with a credit card, payment card, third-party network transaction. The payment settlement entity is responsible for reporting those transactions.
• S or C Corporations 

Churches to keep a Form W-9 “Request for Taxpayer Identification Number and Certification” on file for all independent contractors and guest speakers, even if they believe they won’t need to send them a 1099 form.

That way, if things change over the year and you wind up crossing that $600 annual threshold, you have the names, addresses, and taxpayer identification numbers you’ll need for the 1099 Form.

Clergy Financial Resources offers several options to help you with your tax questions or filing. We have listed three great options to get started. 

Pro Advisor I Tax Support
This support service provides you comprehensive answers to your notice questions. This support service is available at a flat rate of $45.00 for each 30-minutes session.

Online W-2 or 1099 Filings
This service is design for churches that would like to simplify the process of filing the W-2 or 1099 Forms. When your year-end data is ready, enter it on the W2 data screen. Then relax! We’ll do the rest. Let us e-file, print, and mail recipient copies and send you a confirmation that it’s all done. W-2s have never been easier!

Full Church Payroll, Simplified
Payroll is complicated. There are a lot of tasks, laws, forms, and calculations. With so many things to remember, it’s easy to make a mistake. Let’s Clerry Financial Resources help with payroll compliance.

Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

For more information or if you need additional assistance, please use the contact information below.

Clergy Financial Resources
11214 86th Avenue N.
Maple Grove, MN 55369

Tel: (888) 421-0101 
Fax: (888) 876-5101
Email: clientservices@clergyfinancial.com