Classifying workers: W2 or 1099

Classifying worker status correctly protects your church, avoids back taxes and penalties, and allows you to focus on your mission and vision

Quick Summary

Employees (W-2): You direct how and when the work is done. Think staff or regular roles (admin, recurring worship leaders, custodial staff, regular nursery workers).
Independent Contractors (1099-NEC): You pay for results, not the process. Think guest speakers, one-off musicians, a videographer hired per project.
Ministers are “dual-status”: Usually W-2 for income tax but self-employed for Social Security/Medicare (SECA) on their own return.

The Core Test: Control, Finances, Relationship

Are you classifying your church workers correctly for payroll?

It’s very important to classify your workers correctly as W-2 or 1099 according to the IRS.

The IRS summarizes the test to determine classification into three categories:

1) Behavioral Control (Who directs the how)

Do you set specific hours or a recurring schedule?
Do you train or closely supervise how tasks are done?
Must the work be performed personally (no substitutes)?

2) Financial Control (Who controls the business side)

Do you reimburse most expenses or provide tools/equipment?
Is the worker paid a salary/hourly rate rather than per-project?
Are you setting pay or can the worker realize a profit/loss (sets pricing, markets services, carries insurance)?

3) Relationship of the Parties

Is there an expectation the relationship will continue indefinitely?
Do you provide employee-type benefits (PTO, health, retirement)?
Is the work a key part of ministry operations?

If you as an organization answered yes to most of these questions, then they should be classified as a W2 employee and put on payroll. If it’s mostly no to these questions, then they are probably a 1099 contractor.

Church-Specific Scenarios

Pastors or Ministers (Lead/Associate/Youth/Pastoral Staff)

Usually employees (W-2) for income tax.
Typically self-employed (SECA) for Social Security/Medicare, unless exempt.
Housing allowance: If designated in advance, excluded from income tax wages but included in SECA for the minister.

Worship Team & Musicians

Staff worship leaders with weekly responsibilities → W-2.
Musicians for a recurring events, use church owned gear → W-2.
Guest musicians for a single event with a flat fee, own gear, little supervision → 1099.

Guest Speakers & Revival Evangelists

Typically 1099 for one-time honorariums when the church doesn’t control methods.
If recurring with schedules, rehearsals, and direction → likely W-2.

Children’s Workers / Nursery / Custodial

Regular schedule, supervision, church-provided supplies → W-2.
Occasional childcare for a one-off event through a business that sets rates and brings staff → may be 1099.

Administrative Help

On-site, recurring, supervised tasks → W-2.
Virtual assistant company hired per package with its own processes → 1099 (the company).

Volunteers, Love Offerings & Stipends

True volunteers are unpaid. Repeated or expected “stipends” look like wages.
Love offerings to staff are typically taxable compensation. Document intent and frequency; treat as wages if compensating for services.

W-2 vs 1099 Cheat Sheet

Topic	W-2 Employee	1099-NEC Contractor
Direction & Supervision	Church directs how/when work is done	Church buys results; contractor controls method
Tools/Expenses	Church typically provides/pays	Contractor provides tools; expenses baked into price
Pay Method	Hourly/salary; regular payroll	Invoices per project or milestone
Benefits	Eligible for employee benefits	Not eligible
Taxes	Church withholds income tax; FICA applies (clergy handle SECA)	Contractor pays own taxes; no withholding
Year-End Form	W-2	1099-NEC if paid $600+

Side note: A signed contract saying “contractor” doesn’t override how the relationship actually works.

How to Decide (Step-By-Step)

Describe the role as it actually functions (not how you wish it worked).
Walk through the three buckets and mark indicators.
Check church-specific nuances (clergy dual-status, housing allowance, love offerings).
Choose the classification based on the preponderance of factors.
Onboard correctly (see checklists below).
Unsure? Get a professional opinion. You can also file Form SS-8 for an IRS determination.

Onboarding Checklists

If W-2 (Employee)

Offer letter/position description
Form W-4 (ministers may opt out of income tax withholding and make estimates)
I-9 verification
State specific forms (State specific W-4 and new state hire forms)
Set up payroll; withhold/remit taxes (for clergy, no FICA withholding – minister handles SECA unless exempt).
- We recommend Gusto or ADP to help manage payroll
Add to employee handbook/benefits
If applicable, establish a housing allowance designated in writing before payments begin

If 1099 (Independent Contractor)

W-9 on file (legal name, SSN/EIN)
Written services agreement (scope, deliverables, timeline, independence)
Verify contractor controls methods, provides tools, and has appropriate insurance
Pay against invoices; Contractors should be sending invoices to pay, avoid ad-hoc reimbursements unless in contract
Issue 1099-NEC by January 31 if nonemployee compensation totals $600+

Year-End Reporting Timeline (Quick Dates)

January 31: Provide W-2 to employees; 1099-NEC to contractors and file with IRS.
Quarterly: File Form 941 (note clergy treatment) and remit payroll taxes.
Ongoing: Keep designations (e.g., housing allowance), contracts, W-4/W-9s, and classification memos.

Common Pitfalls (and how to avoid them)

“But they asked to be 1099.” Classification isn’t by preference … decide based on facts.
Recurring control over a “contractor.” Weekly schedules, staff meetings, and church tools usually push to W-2.
Paying stipends to volunteers. Repeated or expected payments for service often create taxable wages.
Treating ministers like regular employees for FICA. Remember the dual-status rule.

FAQs

Our part-time worship leader serves ~6 hours/week, year-round. 1099?
Likely W-2 … ongoing schedule, supervision, and integral role.

We hired a videographer to produce an Easter promo video. 1099?
Likely 1099 … project-based, contractor controls methods, provides equipment.

Do we issue a 1099 for a missionary love offering?
If it’s a one-time gift to an outside individual/organization with no services rendered, often no 1099-NEC. If it compensates for services, reporting may apply … document purpose and ask your accountant.

Can we reclassify someone mid-year?
Yes … if facts change (e.g., project role becomes ongoing staff), shift to W-2 prospectively and document why.

In Summary