Form 1099-MISC and Form 1099-NEC Information
Internal Revenue Service (IRS) Form W-2 is a familiar form. Most administrators are comfortable preparing and issuing Form W-2 to employees. However, the issuance of Form 1099-NEC is often overlooked. Prior to 2020, Form 1099-MISC was filed to report non-employee compensation; going forward Form 1099-NEC is to be used in its place.
As stated above, a W-2 is the annual wage and tax statement given to employees for the preparation of their income tax returns. On the other hand, the 1099-NEC is an annual information form that is required to be provided to all non-employees of the church that meet two conditions:
A ministry pays the entity/individual $600 or more in a calendar year for services performed for the ministry through a “contract” business relationship.
The entity/individual indicates on Form W-9 that their federal tax classification is one of the following: individual/sole proprietor, single-member LLC, partnership, trust/estate, LLC with a partnership classification. (Entities that indicate they are “C” or “S” corporations are not issued a 1099-NEC with one exception: attorneys are to be issued a 1099-NEC even if they indicate they are a “C” or “S” corporation when paid $600 or more in a calendar year for their legal services.)
The recipient of a 1099-NEC may include the local florist, a guest speaker for a service (or multiple services), a guest artist giving a concert at a church, the contracted lawn service, plumber, electrician, or custodial service, just to mention a few examples.
The key to determining whether a 1099-NEC should be issued is obtaining a completed Form W-9 from all vendors, both existing and new, with whom the ministry does business. All completed copies of Form W-9 should be kept in a file to serve as support for the decision to issue or not issue a 1099-NEC to the ministry’s vendors.
Form 1099-NEC is complex, and this is a basic memo to start the process of evaluating filing requirements. Please consult with an accountant or contact the IRS directly if you have any specific questions about Form 1099-NEC, including when and where to file it.
Disclaimer
The information contained in this Toolbox series is of a general nature. It is not offered as specific legal or tax "advice." Each person and local church board should evaluate their own unique situation in consultation with their local legal and tax advisors.
Updated 01-14-22