Employee or Contractor?
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 Employees typically: 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. Form W-9 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...
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