Should ministers receive a W2, Misc 1099, both, or neither?

TJI Note: A few months ago we asked one of our best financial advisors, Dale Hubbert, to write some on the matter of churches who will not give W2's. Here is his excellent explanation. Feel free to share this with your elders, leaders, or treasurer. 

by Dale Hubbert

The church is a considered a 501c (3) tax-exempt organization by the IRS  but is not exempt from preparing the proper documents for those it pays.  If a minister is considered an employee of the church the church should provide a W2 form at the end of the year.  IRS Publication 15-A states that one is an employee if the church has the right to control what will be done and how it will be done. This is true even when the employee is given freedom of action. There are various additional considerations in determining if the minister is an employee but generally speaking if a minister “regularly” preaches for a congregation and his work is under the eldership/church leaders he is considered an employee and should receive a W2 form at the end of the year. His employment status is somewhat unique in that he is an employee for W2 purposes but treated as self-employed for social security purposes. Hence the W2 will look different from most others as there will be no social security or Medicare withheld and matched. 

Churches that pay compensation equaling or exceeding $600 in a calendar year are required to provide a Misc 1099 form at the end of the year to the recipient. This would include payment for gospel meetings, special days, etc.  Some ministers speak at various places and are not employees of any congregation.  These men might receive a number of Misc 1099 forms at the end of the year.  They should receive one from every place they received $600 or more.  While there are more factors to consider that has been addressed in this short article it is unlikely that a minister should receive a Misc 1099 form from a congregation that he preaches regularly for and is a member of.   

Minister compensation and reporting can be somewhat complicated and unfortunately, there are congregations that are not in compliance. Ignorance nor failure to comply in the past will not be an excuse should the church be called into question. That is one of the reasons that congregations and ministers need professionals to take care of these matters who are familiar with tax laws regarding churches and ministers.