A Christian School affiliated with a church is very small and provides no salary to its teachers except $500 gifts at Christmas and at the end of the school year. Now that it's so late after the new year started, what reports should be filed in connection with these 2008 payments?
It seems like a shame to have to do so after they earned so little income, but you should issue them Forms 1099-MISC for $1,000 of non-employee compensation each. Technically you were required to withhold the 7.65% FICA tax (and match this amount out of school funds) and then issue them Form W-2s, but it’s too late for that. I recommend that you consider reimbursing them for at least one-half of the self-employment tax that they will owe when they file their 2008 Form 1040s along with their attached Schedules C and SE.
More bad news...these reimbursements themselves are considered taxable income in 2009.