Typically an employee of the church would not perform contract services. Therefore all income should be reported on the employee's W2 as opposed to a 1099. However, there is an exception if the employee is in a "transition" year. This occurs when an employee retires from the church and subsequently performs contract services in the same calendar year.
For example, an executive pastor retires from the church in June of 2008. During July through December of 2008 the retired pastor performs several speaking engagements for the church for a fee. In this situation the retired pastor would receive a W2 for their compensation from January to June and also a 1099-misc for the fees received for their speaking engagements performed from July to December. Box 7 of the 1099-misc would be checked for speaking engagements.
In this situation it is still imperative that the church apply the employee vs. contractor tests in order to make sure that the retired pastor is in fact acting as a contractor and not an employee.
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