You’re busy spreading the Good News, not interpreting tax rules.  Your mission is important.  So important, it is easy to overlook regulations that require the filing of forms, such as Form 1099-MISC, with the IRS.  Many church treasurers and administrators have never even heard of Form 1099-MISC, let alone if or when it may be required.  In this article, I will draw upon information provided in our 1099-MISC Basics Course to explain what Form 1099-MISC is, why it is important, and under what circumstances churches need to file it. 

Form 1099-MISC, What and Why:  Form 1099-MISC is a vital tax-compliance tool.  It informs the IRS of income that should appear on the recipients’ income tax return.  Form 1099-MISC is important because numerous studies have shown that unfiled 1099-MISC forms result in unreported income and billions of dollars in unpaid tax.   This unpaid tax increases deficits, borrowing, and pressures lawmakers to raise tax rates.   Businesses and organizations required to file Form 1099-MISC must do so or face a stinging array of possible penalties.  

Churches Must File Form-1099-MISC: All businesses and organizations are required file 1099 Forms, including Form 1099-MISC, when they make certain payments to others.   Church officials are often surprised to learn that 1099 rules don’t just apply to businesses.  The rules apply to nearly all organizations and associations, including churches.   Additionally, it does not matter if your church is formally recognized as a nonprofit or remains unregistered with any tax authority.   It must file Form 1099-MISC when required.

Church payments requiring Form 1099-MISC are common.  So common that I often hear gasps when church officials learn how often it is necessary - gasps usually followed by an “Oh, no.” when they realize their church has never filed a single 1099-MISC.  

This provides me the opportunity to share some good news of my own – knowing what payments require Form 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-MISC Basics.  Churches must follow the same rules.   In what remains of this article I will briefly discuss topics our course covers in detail - the most common payments businesses (and churches) make that require Form 1099-MISC; Rents and Nonemployee Compensation.  

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.  It can even include the rent of machinery or equipment rented for church use. 

Nonemployee Compensation: The most common payments churches make that require Form 1099-MISC are those made for nonemployee compensation.  Nonemployee compensation is payments made to individuals (who are not church employees) and businesses for services.  These amounts are reported in Box 7 of Form 1099-MISC and required when service payments to any individual or business equal or exceed $600 during the calendar year.  There are a variety of services that require Form 1099-MISC.  Many of these payments are commonly overlooked, even by churches that file their 1099-MISC.   We cover such payments and list them in detail in the resource section of our Form 1099-MISC Basics Course.  

Be Careful of Common Law Employees & “Gifts:” It is important to determine whether an individual to whom you are making payment is not considered a common-law employee before providing them a Form 1099-MISC.   Common-Law employees must receive a W-2, not a 1099-MISC, regardless of any agreement between the church and the individual.  This error is common with ministers and administrative staff and is a topic covered in Overnight Accountant’s Form 1099-MISC Basics Course.

It is also important to note that labeling a payment a “gift” does not absolve a church from having to file Form 1099-MISC.   If the payment is related to services, even the services of “volunteers,” a 1099-MISC may be required. 

1099-MISC Complexities and Backup Withholding:  Form 1099-MISC reporting rules are full of complexities that make compliance difficult without proper training.  Even worse, your church’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 process is called backup-withholding, and the failure to collect and remit backup-withholding can result in a significant penalty, a penalty assessed on both the HOA and the individual making payment.

Inexpensive 1099-MISC Training:  Overnight Accountant created Form 1099-MISC Basics Course to help businesses and churches avoid penalties related to Form 1099-MISC and backup-withholding.  This course will help you to understand the most common payments that require Form 1099-MISC.   It also provides step-by-step instruction on how to complete and file Form 1099-MISC as well as guidance on how to avoid backup withholding and remained penalties.

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.

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