10 Common Payroll Tax Reporting Errors
Richard Hammar | posted 7/21/2009
1. Treating ministers as self-employed for income taxes
Most ministers are employees for federal income tax reporting purposes.
2. Treating ministers as employees for Social Security
Ministers always are self-employed for Social Security with respect to ministerial services (except some chaplains).
3. Withholding taxes from ministers' pay without authorization
Ministers are exempt from income tax withholding, whether they report their income taxes as employees or self-employed; ministers who report their income taxes as employees can request voluntary withholding by submitting a Form W-4 to the church.
4. Withholding payroll taxes from ministers who report their income taxes and Social Security taxes as self-employed
Do not withhold payroll taxes from self- employed persons.
5. Giving Forms W-2 to self-employed ministers
Provide self-employed workers who are paid $600 or more during the year with a Form 1099-MISC, not a Form W-2.
6. Failure to provide Forms 1099-MISC to nonemployee recipients of $600 or more of annual compensation
A Form 1099-MISC must be issued to such persons.
7. Church employees failing to pay self-employment taxes if their employing church exempted itself from the employer's share of FICA taxes (by filing a Form 8274)
Such employees are treated as self-employed for Social Security with respect to their church compensation and must pay the self-employment tax.
8. Not filing Forms 941
These forms must be filed quarterly by a church with one or more nonminister employees (or a minister who elects voluntary withholding).
9. Not issuing Forms W-2 or 1099-MISC
A Form W-2 must be issued to each employee, and a Form 1099-MISC must be issued to each nonemployee (who received compensation of at least $600 during the year).
10. Not complying with payroll tax deposit requirements
Submit directly to the IRS payroll taxes of less than $2,500 at end of any calendar quarter with Form 941; if accumulated payroll taxes are $2,500 or more at end of any month, deposit with a bank by 15th day of next month.
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Teresa Kelley
Can you direct me to more information concerning #5 (form 1099 for self-employed ministers vs. W-2 form)? We would like to pass this information along to the church treasurer.
Pam
Shirley-Please get the instructions for the form 1099-misc. It specifies what type of entity gets the forms, but in general, send a 1099-misc to ALL individuals & companies (including d/b/a, LLC, etc.) EXCEPT those who are incorporated. All vendors/subcontractors should supply you with a completed form W-9 which states their name(s)/company name, address & tax id #. The instructions can be found on the IRS website.
Shirley Ralls
What is hard for me to understand is when a non-employee receiving over $600/yr requires a 1099 and when not. Yes when paid to a person hired for snow removal or other contracted services? No if they use a DBA?
Heather Tempas(Registered User)
Ruthie is correct about #10 - snail mail is out!Online and telephone reporting/payments are acceptable.
Ruthie Jo Popp
A comment about #10: I don't believe that the IRS allows deposits with banks anymore. They are requiring on-line payments. One option is through EFTPS (Electronic Federal Tax Payment System), but there are also a couple of other ways to make these deposits. I believe this change was as of the first of the year 2011.
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