You’re busy spreading the Good News, not interpreting tax rules. Your mission is critical. So important, it is easy to overlook regulations that require the filing of IRS forms, such as Form 1099-NEC or 1099-MISC. Many church treasurers and administrators have never even heard of these forms, let alone if or when it may be required. This article draws upon information provided in our Form 1099-NEC and 1099-MISC Training Course. It introduces the “new” Form 1099-NEC, explains what Forms 1099-NEC and Form 1099-MISC are, why they are essential, and why your church must file them.
Reintroducing Form 1099-NEC: Form 1099-NEC reports Nonemployee Compensation (NEC) to the IRS and those who earn self-employment income. It was used until 1983 when nonemployee compensation got added to Form 1099-MISC. In 2017, the IRS attempted to increase tax compliance by changing the due date for all 1099-MISC forms that included nonemployee compensation. The change befuddled businesses, software companies, and even the IRS. Then, after several years of reporting-confusion, the IRS reinstated Form 1099-NEC in 2020. As a result, business owners, government agencies, and nonprofits (including churches) have two 1099s that commonly require attention.
Form 1099-NEC and 1099-MISC, What and Why: These forms are vital tax-compliance tools. Each informs the IRS of income that should appear on the recipients’ income tax return, income the IRS can quickly match when the forms get filed. Why is this so important? Because the failure of businesses and organizations to submit required 1099s costs the government billions of dollars in lost tax every year. These unpaid taxes increase deficits and borrowing and pressure lawmakers to raise tax rates. In recent years, noncompliance has become so rampant that the IRS has resorted to enforcing the rules with a stinging array of Increasing Penalties.
Churches Must File Form 1099-NEC & 1099-MISC: All businesses and organizations are required to file 1099 Forms when they make certain payments to others. Church officials are often surprised to learn that 1099 rules don’t just apply to businesses. They apply to nearly all organizations and associations, including churches. Additionally, it does not matter if your church is an approved 501C(3). It must still file 1099 forms when required.
Church payments regularly require completion of Form 1099-NEC or 1099-MISC. I often hear gasps when church officials learn how often reporting is necessary - gasps usually followed by an “Oh, no, we have never filed them.”
Knowing what payments require Form 1099-NEC or 1099-MISC is the first step to avoiding IRS problems. Our passion for sharing this knowledge inspired the creation of Overnight Accountant’s course, Form 1099-NEC and 1099-MISC. Churches must follow the rules presented in this course. I will highlight the basics below.
Form 1099-NEC is the most common 1099 form churches are required to file. Nonemployee compensation is payments made to individuals (who are not church employees) and businesses for services. These amounts are reported in Box 1 of Form 1099-NEC and required when service payments are made to any individual or business equal or exceed $600 during the calendar year. There are a variety of services that require Form 1099-NEC reporting. Many such payments are commonly overlooked, even by organizations that their 1099s. We cover these expenditures in detail in our Form 1099-NEC and Form 1099-MISC Training Course.
Warning - Common Law Employees & Gifts: It is essential to make sure an individual is not considered an employee under common law before issuing a 1099-NEC. Common-law employees must receive a W-2, not a 1099-NEC, regardless of any agreement between the church and the individual. This error is rampant among ministers and administrative staff. To learn the rules regarding common-law employees, please take our Course, Employees vs. Independent Contractors.
It is also important to note that labeling a payment a “gift” does not absolve a church from having to file Form 1099-NEC. Any gift exchanged for services, even those of volunteers, may require reporting.
Rents: Rents are reported in Box 1 of Form 1099-MISC when your church pays rents of $600 or more during the calendar year.
Rents can include amounts paid for office space or other space (including land) rented for church use - even maintenance equipment or bouncy houses.
Form 1099 Complexities and Backup Withholding: Form 1099-NEC and 1099-MISC reporting rules are full of complexities that make compliance difficult without proper training. Even worse, an organization’s failure to obtain the taxpayer identification number (TIN) of those required to receive a Form 1099-MISC may force it to remit a portion of each payee’s payment to the IRS. This remittance is called backup-withholding, and the failure to collect it can result in a significant penalty. This penalty can get assessed on both the church and the individual required to receive it.
Inexpensive & Effective 1099 Training: Overnight Accountant created Form 1099-NEC and Form-MISC Training Course to help businesses and churches understand their 1099-MISC and 1099-NEC obligations. This course will help you or your staff understand everything related to reporting nonemployee compensation and rent. It provides step-by-step instructions on how to complete and file these forms. It includes a course workbook and exam—even a frameable certificate for staff members who complete the training. We also invite you to check out our expanding course listing.
All courses and articles are for informational purposes only and do not constitute tax advice. Taxes are complicated - do not act on course information without consulting a professional. Always refer to treasury regulation before making any tax decision. Read the full disclaimer.
I really appreciate you doing the class. It was quite helpful.- Debbie Y, Greensboro, NC, 1099-NEC & 1099-MISC Course (Training Edition) Course
This course package is thorough and will give you a solid handle on how to optimize your business expenses to minimize your taxes and keep appropriate records to handle any IRS challenges. Only want to dive into a particular topic? Jump to that video and scan forward to where your issue is addressed. Or watch the whole series to learn it all!- Josh, Charles Town, WV, Real Estate Agent Tax-Cut Library, Agent Edition Course
Your video class on this issue (HOA taxes) has given me the confidence to go forward.- Desmond, Frederick, MD, 1120-H Basics Course
I haven’t practiced in the accounting field in quite some time and wanted a refresher. The Overnight Account course 1099-Misc Basics was very helpful! It was simple to follow along and understand each section. I would highly recommend this course! Staff were quick to answer my question as well. I love that I can review the modules again, if needed, at any time. I will definitely be using them again for more classes.- Tammy, Anchorage, AK, 1099-MISC Basics (Training Edition) Course
The course was excruciatingly detailed, which I appreciate. I definitely recommend this course to anyone who even thinks they may need it.- Greg, Brookfield, IL, 1099-MISC Basics Course