Mastering 1099 Forms: Essential Tips for Churches

Navigating the complexities of 1099 forms can be challenging for churches striving to maintain integrity and compliance. Here are the essential steps you can take now to help you manage risks and ensure proper handling of 1099 forms.

You may be thinking. “Why are we talking about 1099s in September, when they aren’t even due until the end of January?”  That’s a legitimate question.  The short answer is that “now” is a perfect time to prepare for what you know lies ahead.  You lose a lot of “leverage” the longer you wait, and potentially open your church to IRS penalties and sanctions.

Obtain W-9 Forms from Vendors

I counsel my clients that the absolute best time to get a form W-9 from your vendor is BEFORE you hand them their first payment.  The second best time is NOW.  Waiting until January to track down the information you need to file your 1099s causes stress, confusion, and unnecessary angst at an already busy time of year.

Obtaining a completed and signed W-9 form from each vendor who provides “services” is essential. This form protects your church because the vendor’s signature certifies (under penalties of perjury) that they have provided you with accurate information -  including their name/company name, tax ID number (social security number or Employer Identification Number “EIN”), current address, and tax classification status. 

Backup Withholding

If your vendor refuses to give you completed Form W-9, you need to begin withholding 24% of the total payment to the vendor as backup withholding.  This is a cumbersome process and adds a layer of complexity to paying your vendor.  Should you be put in this position, now is a good time to consider whether you want to continue working with a vendor who will not submit to the authority of the government.

Understanding 1099 Forms

There are several types of 1099s forms.  The three most commonly used forms by churches are the 1099-NEC, 1099-MISC, and the 1099-INT.

The 1099-NEC form is used for workers who provide services and are not classified as employees. Properly classifying workers as either employees or independent contractors is critical. Misclassification can lead to lawsuits, penalties, and damage to your church's reputation. To determine the correct classification, you should consider factors such as the degree of control (including expected time to show up and number of hours to work), financial investment by the worker (the tools they provide versus the tools the church provides), and the relationship of their work to the overall ministry of the church.  Two commonly misclassified workers in churches are part-timers - particularly musicians and childcare workers.  

Note:  Churches may consider proactively reclassifying workers through the Voluntary Classification Settlement Program (VCSP), which offers partial relief from IRS penalties.  We will discuss this topic in an upcoming article.

The 1099-MISC form is used to report Rent and Royalties. If you are leasing space, storage facilities, or equipment, it’s a good idea to obtain a Form W-9 from your landlord or lessor, to confirm their tax classification status.  If you sell books, music, or other resources on which you pay royalties to the author, you are required to file a form 1099-MISC if the amount paid equals $10 or more (not the usual $600 threshold).

The 1099-INT form is used to report Interest Paid to private individuals.  One of my clients received a short-term “bridge” loan from a private individual when they were in the process of purchasing a building.  Therefore, they were required to send the lender a 1099-INT form for the interest portion of their payment.  Like royalties, the 1099-INT form is required if the lender is paid $10 or more.  Please note that the 1099-INT form is not available through QuickBooks.

Better Late than Never

Filing 1099 forms is essential for maintaining integrity and staying in compliance.  My recommendation is to file your forms, even if you know the form(s) will miss the January 31 deadline and/or if you know you are missing information.

Don’t be afraid to file your 1099s in multiple batches.  

Get the 1099s out on time for as many vendors as possible, begin backup withholding if required, and file the remaining 1099s as close to the deadline as possible.

To deepen your understanding of 1099 forms and other essential compliance topics, join the Good Steward Church Academy. Become part of a community dedicated to maintaining integrity and excellence in church administration. Sign up today on our website and take the first step towards mastering your church's financial stewardship!