What Churches Need to Know about Form 1099

In 2021, the IRS introduced a new form that churches should use when reporting nonemployee compensation—the Form 1099-NEC, Nonemployee Compensation (NEC).

For many churches, the 1099-NEC became the primary form used to report compensation paid to contractors, vendors, visiting speakers and guests. This type of income was previously reported in box 7 of the 1099-MISC but should now be reported in box 1 of the 1099-NEC.

Using the Form 1099-NEC

According to the IRS, the 1099-NEC should be completed for each person to whom the church paid at least $600 during the year in:

1. Services performed by someone who is not your employee (including parts and materials).
2. Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish.
3. Certain payments to an attorney.

You must also file Form 1099-NEC for each person from whom you have withheld any federal income tax (report in box 4) under the backup withholding rules regardless of the amount of the payment.

As noted earlier, these payments, in the past, would have been reportable on 1099-MISC in box 7. However, these payments are now reported on the 1099-NEC.

Using the Form 1099-MISC

It is important to note that there are still some payments to vendors that churches will still have to report on the 1099-MISC. However, the form has been redesigned and some boxes numbers have been rearranged, so be careful when filling it out.

For example, the 1099-MISC form should still be used for each person to whom the church has paid the following during the year:

• At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
• At least $600 in:

1. Rents (box 1);
2. Prizes and awards (box 3);
3. Other income payments (box 3);
4. Any fishing boat proceeds (box 5);
5. Medical and health care payments (box 6);
6. Crop insurance proceeds (box 9);
7. Certain payments to an attorney (box 10);
8. Section 409A deferrals (box 12);
9. Nonqualified deferred compensation (box 14).

You must also file Form 1099-MISC for each person from whom you have withheld any federal income tax (report in box 4) under the backup withholding rules regardless of the amount of the payment.

And remember, both of these 1099 forms are only required for business payments. Personal payments that individuals make to vendors and contractors do not apply. But since churches and nonprofits are considered to be engaged in a trade or business by the IRS, these 1099 forms will be required for most churches.

• Important Tip: The IRS Form W-9, Request for Taxpayer Identification Number and Certification, is completed by nonemployees to provide key information for the Forms 1099-NEC and 1099-MISC.

Due Dates:

Each of these forms have different filing dates. The Form 1099-NEC is due to recipients and the IRS on January 31st, using either paper or electronic filing procedures. The Form 1099-MISC is due to the recipient by February 1st and to the IRS by February 28th, if you file on paper, or March 31st, if you file electronically.

For additional information about these forms, see the following IRS publication: Instructions for Forms 1099-MISC and 1099-NEC (1/2022)