Form 1099-NEC (Nonemployee Compensation) is the IRS information return used to report payments made to non employees for services performed in the course of a trade or business—including churches and ministries. It’s important to note that the rules for using Form 1099 are the same whether you’re for profit, or a non profit like a church or ministry.
New in 2026, the reporting threshold for nonemployee compensation increases from $600 to $2,000 per payee, per calendar year, due to the One Big Beautiful Bill Act (OBBBA, 2025). This threshold will be indexed for inflation annually starting in 2027 and rounded to the nearest $100. The change is intended to reduce paperwork for smaller payments.
However, the new threshold does not change the taxability of these types of payments. Recipients must report all income, whether they receive a 1099 or not.
To help churches navigate the complexities of this form and the new threshold, here are answers to some frequently-asked questions.
Q1: Who Must Receive a 1099-NEC?
Churches and nonprofits must issue Form 1099-NEC to individuals, sole proprietors, partnerships, LLCs treated as disregarded entities, and certain corporations (such as law firms) when payments for services reach the annual threshold. This includes contractors, consultants, accountants, graphic designers, speakers, evangelists, missionaries (if paid personally), and board members receiving stipends.
The four conditions requiring a 1099-NEC are unchanged, and include:
- Payment to a non employee.
- Payment for services performed in the course of your trade or business.
- Payment to an individual, partnership, estate, or qualifying corporation.
- Payments meeting or exceeding the annual threshold.
Of these four conditions, the foundational triggers include payment to someone who is not your employee for services in the course of your trade or business.
Q2: What Payments are Reported on Form 1099 NEC?
Churches should report the following in Box 1:
- Fees, commissions, and payments for services to contractors, accountants, architects, engineers, entertainers, and similar providers.
- Payments to attorneys for services even if the attorney is incorporated.
- Consulting fees and unaccounted travel reimbursements when combined totals reach $2,000.
- Payments to nonemployee entertainers.
- Barter or service exchanges (each party reports the fair market value of services provided).
- Taxable fringe benefits provided to nonemployees, including personal use of business assets.
Q3: What Payments are NOT Reported on 1099-NEC?
Churches and nonprofits do not need to issue a 1099-NEC for:
- Payments to most corporations (except attorneys).
- LLCs taxed as S or C corporations.
- Purchases of goods or merchandise.
- Wages to employees.
- Payments to tax exempt organizations, governments, or tax exempt trusts.
- Accountable plan reimbursements to volunteers or employees.
- Credit card or third party processor payments.
- Payments below the threshold.
- Payments to evangelists or missionaries when paid to their tax exempt organization.
- Rent paid to real estate agents or property managers.
Q4: When Should Churches Use Form 1099-MISC Instead?
Form 1099-MISC is used for payments not subject to self employment tax, including:
- Rent. (However, you do not have to report these payments on Form 1099-MISC if you paid them to a real estate agent or property manager.)
- Royalties of $10 or more.
- Prizes and awards not tied to services.
- Attorney gross proceeds and settlements of $600 or more.
- Deceased employee wages paid the year after death.
- Other miscellaneous income reported in Box 3.
Q5: What are Some Special Situations to be Aware of?
Due to the unique nature of churches, there are some special situtations that can confuse bookkeepers, to include:
- Love Gifts, Honorariums, and Guest Speakers. Nonprofits must issue a 1099-NEC when paying an evangelist, missionary, or guest speaker personally. No form is required if payment is made to their tax exempt organization.
- Board Stipends. Board stipends, honorariums, or remuneration for board service are reportable on Form 1099 NEC. However, reimbursements under an accountable plan are not.
Q6: What are Some Common Pain Points?
Churches and nonprofits often struggle with these common issues:
- Worker Misclassification. Determining whether a worker is an employee or contractor can be challenging. The IRS uses behavioral, financial, and relationship factors rather than a single test. Misclassification can lead to back taxes, penalties, and interest.
- Obtaining Accurate W-9s. Missing or incorrect W-9s cause year end delays and may trigger backup withholding. If a payee fails to provide a valid TIN, nonprofits may be required to withhold 24% of payments and remit them to the IRS. Collecting a complete Form W-9 before payment avoids this requirement.
- Tracking Payments. Aggregating payments across departments or systems can be tedious. Credit card payments often cause confusion but should be excluded from totals.
- Credit Card and Third Party Payments. Payments made via credit card, PayPal, Venmo, or other third party processors should not be included in your 1099 totals. These are reported by the payment processor on Form 1099-K when thresholds are met.
- Deadlines and Filing Requirements. Deadlines may shift slightly due to weekends or holidays, but here are the general due dates for the 1099-NEC and 1099-MISC.
- 1099 NEC: Due to recipients and the IRS by January 31
- 1099 MISC: Due February 28 (paper) or March 31 (electronic)
- The January 31 deadline for 1099 NEC leaves little room for error. Electronic filing is required for organizations issuing 10 or more returns.
- Penalties. The IRS imposes tiered penalties ranging from $60 to over $340 per form, depending on lateness and business size. Intentional disregard results in significantly higher penalties.
- Attorney Payments and Special Cases. Attorney reporting rules are frequently misunderstood since they can recevie a 1099-NEC even if they are a corporation. Additionally, some settlement payments of $600 or more belong on Form 1099-MISC rather than 1099-NEC.
- Manual Processes and High Volume. Spreadsheets and manual tracking increase the risk of errors, duplicates, and omissions.
State Compliance. States may have their own filing requirements or withholding rules, adding complexity.
Q7: What are Some Best Practices for Nonprofits?
To help avoid these common pain points and ensure compliance, here are some best practices to implement in your organization:
- Require W-9s during vendor onboarding.
- Track payments throughout the year using accounting software.
- Verify TINs using IRS TIN matching.
- Review totals per payee before year end.
- File electronically when required.
- Maintain copies of all submitted forms.
- Consult a CPA for complex cases.
Q8: Where Can I Find More Information?
For the most current details, refer directly to IRS Instructions for Forms 1099-MISC and 1099-NEC, Publication 15-A, and General Instructions for Certain Information Returns. Rules can change (e.g., the 2026 threshold), so consult a tax advisor if you have questions about a specific situation.
