Payments for Services
Any person asked to perform a duty and, as a result of performance of that duty receives compensation, is considered an employee and taxes must be withheld and reported. (The only exception is for ordained, licensed and/or credentialed ministers.)
Any person not considered to be an employee who receives $600 between January 1 and December 31 of any single year, will be required to furnish the church with their Social Security number and a Form 1099-MISC will be issued after December 31.
Employee vs. Independent Contractor
Receive salaries or hourly wages (whether part-time or full-time)
Can be fired
Can quit without penalty
Must submit reports
Must obey instructions
Must do the work themselves
Are hired to provide services for an indefinite period of time, rather than to accomplish a particular task
Are eligible for fringe benefits (health, disability, pension, sick pay, etc.)
Are provided what is needed to do their job.
Are reimbursed for expenses
Independent contractors are considered self-employed. They typically:
Set their own hours
Decide how to get the work done (rather than follow someone else’s instructions)
Offer their services to the public
Provide their own equipment
May work on someone else’s property, and for several persons at the same time
May employ assistants
Are hired to do a particular task, and are paid by the job
Have a substantial financial investment in the work
The above lists are intended as guidelines in determining the appropriate status for tax reporting purposes; it is not required that all items apply to make a determination. For a more detailed discussion, reference Pub. 15-A, Section 2 “Employee or Independent Contractor,” located at http://www.irs.gov/pub/irs-pdf/p15a.pdf.
Completing Forms 1099 and Filing Form 1096
If a church has independent contractors, they must be given a Form 1099 before the last day of January reflecting all payments made to that individual during the previous year. The Form 1099 should be used to reflect payments to independent contractors, evangelists, traveling singing groups, etc. If the amount given to the person is less than $600, no Form 1099 is required. However, if multiple checks are given to the person that are individually less than $600 but aggregate more than $600, a Form 1099 must be issued.
Form 1096 serves as the transmittal form for all informational returns such as the Form 1099, and must be filed by no later than the end of February each year.
To complete all the tax information forms required, certain identifying information is needed on each person. The church needs to know the person’s legal name, their address, and their Social Security number. For independent contractors, evangelists, singing groups, etc., that vital information may not be so readily available.
The Internal Revenue Service makes Form W-9 available for this purpose. Form W-9 can be accessed at http://www.irs.gov/pub/irs-pdf/fw9.pdf.
The Form W-9 not only collects all the vital information needed, it serves as a certification that the person is a U.S. citizen. An updated Form W-9 should be kept on file. In addition, no check should be written to any independent contractor, evangelist, singing group, etc. until they have completed a Form W-9.
The Internal Revenue Service in conjunction with the Immigration and Naturalization Service has instituted raids on some employers, checking the legality of certain documentation kept on file by the employer. Having a properly completed Form W-9 on all service providers eliminates the fear of such enforcement actions.
Failure to timely file correct and complete information returns can result in substantial penalties. Form 1099-MISC is incomplete if the payee’s taxpayer identification (TIN) number is omitted or if the payee’s name and TIN are mismatched.
(Sample Letter of Request –Guest Speaker/Singer)
It is my understanding that you are scheduled to speak/sing on (Date).
With great anticipation, we are looking forward to your ministry!
In order to properly prepare an honorarium for your services, please complete the enclosed Form W-9 and return in the pre-addressed envelope provided at your earliest convenience.
Thank you for your kind assistance in this regard.