What Clergy and Churches Need to Know

The IRS has announced a significant change to Form 1099-NEC reporting requirements, which will impact churches, ministries, and clergy-related organizations starting in 2026. Under the OBBB Act, the threshold for issuing Form 1099-NEC will increase from $600 to $2,000, offering welcome relief to many small ministries and nonprofits.

What Is Form 1099-NEC?

Form 1099-NEC is used to report nonemployee compensation—payments made to independent contractors, consultants, guest speakers, musicians, and other service providers who are not on payroll. Churches and religious organizations are required to issue this form when payments exceed the IRS threshold.

What’s Changing?

Starting with payments made in 2026, organizations will only need to issue a 1099-NEC if they pay $2,000 or more to a nonemployee in a calendar year.

Key Highlights:

• Effective Date: Applies to payments made after December 31, 2025
• New Threshold: $2,000, up from $600
• Inflation Adjustment: Beginning in 2027, the threshold will be adjusted annually for inflation
• Backup Withholding: Also tied to the new threshold starting in 2027

Why This Matters for Churches and Clergy

1. Reduced Administrative Burden

Churches often make small payments to guest speakers, musicians, or volunteers. Under the new rule, many of these payments will no longer require a 1099-NEC, simplifying year-end reporting.

2. Lower Risk of Penalties

Fewer required filings mean reduced exposure to penalties for late or incorrect 1099 submissions.

3. Improved Focus on Larger Transactions

Church finance teams can now focus their compliance efforts on more substantial payments, streamlining operations.

Important Caveats

• Income Is Still Taxable: Even if a 1099-NEC isn’t required, recipients must still report all income on their tax returns.
• Recordkeeping Still Required: Churches must continue tracking all payments for audit and financial reporting purposes.
• W-9 Forms Still Necessary: Always collect a W-9 from vendors, even if you don’t end up issuing a 1099.

Preparing for the Transition

Churches and clergy should begin reviewing their vendor payment processes now to prepare for the 2026 transition. Consider updating your accounting software, vendor onboarding procedures, and internal policies to reflect the new threshold.

The new $2,000 1099-NEC threshold is a positive development for churches and clergy-led organizations. It reduces paperwork, lowers compliance costs, and allows ministries to focus more on mission and less on administration. However, proper planning and education are essential to ensure smooth implementation and continued IRS compliance.

If you require more specific guidance tailored to your situation, we recommend reaching out directly to Pro Advisor Support. Their team can provide expert assistance and help address any questions.

Clergy Financial Resources
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Maple Grove, MN 55369

Tel: (888) 421.0101

Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

For more information or if you need additional assistance, please use the contact information below.

Clergy Financial Resources
11214 86th Avenue N.
Maple Grove, MN 55369

Tel: (888) 421-0101
Fax: (888) 876-5101
Email: clientservices@clergyfinancial.com