1099 person but 941s filed.

[schirallicpa]

I've got a taxpayer thats a church that I have always issued a 1099 for the pastor.  This year there was a payment made to HSA and a letter showing where to report on W2.  Treasurer tells me she has been filing 941 for several years but no withholding and no tax.  Has not ever filed state forms.  I don't even know which direction to go with this.  The pastor really isn't acting as an employee and travels in and out of the community setting his own schedule.  And if 941s have been filed, someone will be looking for w2.  No notice.  If they have file Federal, won't the state want something - but again no withholding and no tax. This makes my head hurt.

[Lion EA]

https://www.irs.gov/businesses/small-businesses-self-employed/members-of-the-clergy

https://www.irs.gov/pub/irs-pdf/p517.pdf

https://www.irs.gov/taxtopics/tc417

[Lee B]

Really, a pastor is an independent contractor? Well, that's a flexible definition

[Lion EA]

Is the church part of a larger denomination? They would have a financial resource person to advise the church and you. Probably a manual.

[Medlin Software, Dennis]

Church payroll is a highly specialized endeavor. Even some of the denomination provided advice can be suspect. Coupled with the number oif church payrolls run by volunteers, and kind at heart folks, mistakes are common.

[schirallicpa]

50 minutes ago, Lee B said:

Really, a pastor is an independent contractor? Well, that's a flexible definition

He doesn't live near the church, and he usually is not the Sunday morning guy.  But will do other pastorial duties for the church.  So I have never had a probelm with him being a 1099.  No housing allowance and all that.  We're not talking much money here - barely 4 digits.

[Medlin Software, Dennis]

My usual first place to look is in the image. I used to have an online "friend" who was likely the most expert independent person on church payroll, but they passed a few years back. "Doing pastoral duties for the church" sounds like employee for that work. As opposed to performing a wedding for a church member as IC.

 

[BulldogTom]

https://www.guidestone.org/Updates/Ministers-Tax-Guide

This is my go-to for ministers issues.   We used to have a clergy tax expert on the board but I have not seen him in years.   I think he is the one who gave me this resource many years ago.   

Tom
Longview, TX

[Medlin Software, Dennis]

I have not followed it in a bit, but there was some court challenges to housing allowance - I don't remember the argument, other than it seemed logical (which does not usually apply to taxation). I don't expect HA to get negated, as the political ramifications would cause upheaval for sure, but IIRC, it was an interesting argument.

[Margaret CPA in OH]

Another resource is the Church and Clergy Tax Guide available through Church Law and Tax published by Christianity Today International.  I have subscribed for many years and found it very useful both as a church treasurer and having several clergy as clients.

To address your situation would require so many questions.  Clearly there is a lack of communication between this church and the minister.  My guess would be to begin with asking how the minister files her/his return and whether this person filed Form 4361.  You can also check Pub. 517.

[Lion EA]

https://www.cpg.org/redirects/tax-resources/

https://www.cpg.org/globalassets/documents/publications/tax-2024-federal-reporting-requirements-for-episcopal-churches.pdf

Richard Hammar is an expert & author: https://www.churchlawandtax.com/

And Beverly Worth: https://lifeandleadership.com/book-summaries/worth-income-tax-guide-for-ministers/

 

[Medlin Software, Dennis]

Similar but different. In my younger days, I would inevitably end up involved with whatever org my kids were in. Baseball, school, whatever. So many times the finances were a mess for prior volunteers. Now, those that care about me prohibit me from volunteering. Paid? Maybe, but the usual is to refer to pros who will be there through many volunteer cycles. 

[schirallicpa]

1 hour ago, Medlin Software, Dennis said:

My usual first place to look is in the image. I used to have an online "friend" who was likely the most expert independent person on church payroll, but they passed a few years back. "Doing pastoral duties for the church" sounds like employee for that work. As opposed to performing a wedding for a church member as IC.

 

Lets not read into this more than it is - he's doing weddings and funerals stuff like that.  This is not an argument about whether he is independent or not.  My issue is the fact that the treasurer has been filing these no-tax 941s for it for a few years and noting that there had not been any inquiry regarding it from IRS or NYS.  I would normally just file another 1099 for him, but now I have this HSA report showing a whole $36 that prompted the treasurer to ask me about it.  

[Medlin Software, Dennis]

1 minute ago, schirallicpa said:

Lets not read into this more than it is - he's doing weddings and funerals stuff like that.  This is not an argument about whether he is independent or not.  My issue is the fact that the treasurer has been filing these no-tax 941s for it for a few years and noting that there had not been any inquiry regarding it from IRS or NYS.  I would normally just file another 1099 for him, but now I have this HSA report showing a whole $36 that prompted the treasurer to ask me about it.  

Yuck/muck. Sounds like the clergy person is doing right, and the church person (and whomever is or should be monitoring their books) has been making the same error for years.  Sadly, more common than it should be, even in the small sample size I deal with.

If not acting as an employee (assuming there is no employee activity at all), if there are any payments from the church to your client at all, why? I have seen similar before, a church has associates who never give in church service, but do things like weddings and counseling. The church lets them be an associate, but unless they do something such as fill in speaking, they are never an employee.

[Lee B]

In that case amend the 941s and have the payment to the HSA reversed.

[DANRVAN]

2 hours ago, schirallicpa said:

My issue is the fact that the treasurer has been filing these no-tax 941s for it for a few years

This is their problem not yours!

3 hours ago, schirallicpa said:

But will do other pastorial duties for the church.

If they are treating him as an employee then you should as well.  I would not want the liability of making that determination for a number of reasons.

They need to issue a W-2 and any state report.

5 hours ago, schirallicpa said:

has been filing 941 for several years but no withholding and no tax. 

Since he is dual status there would not be any fica or m.c. to withhold.

2 hours ago, Margaret CPA in OH said:

asking how the minister files her/his return and whether this person filed Form 4361.

But that really has no bearing on how the church report his wages.

Since he is dual status he reports on Schedule SE unless he has filed Form 4361.  The church does not withhold for fica regardless of the 4361.

[DANRVAN]

above post was duplicated and deleted

[schirallicpa]

Filed the W2 - which - back to another post about ID.me I can't seem to log into SS this year so I mailed in the W2 and W3.  And I asked the client to not ask me to prepare this next year:)  Like I said-  This gave me a headache!  Let alone - last minute!!

[gfizer]

I have a similar issue but different.  My husband is a minister so I'm pretty well versed in tax returns for ministers.  I have a new client who is a minister.  His pay was properly allocated between salary and housing allowance.  The church wants to give him a 1099NEC but the proper way to report the income is on a W2 so that the salary portion can be shown in Box 1 and the Housing Allowance portion can be shown in Box 14.  My question is can the church furnish a W2 when they haven't filed any 941 returns during the year?  The 941 forms would've been informational only because there was no federal income tax withholding and the wages weren't subject to social security or medicare withholding.  Thoughts?

[Medlin Software, Dennis]

The church can send what they want. The employee has no concern with 941 issues. Of course, HA should be reported to the clergy person on letterhead, usually showing the amount for the year ended, and the pre auth (required) for the upcoming year. There is zero requirement for HA to be on a W2 (and I am a stickler for not adding non required things to a W2).

A 941 is filed, as there were wages, even if not taxable. Another example is a seasonal business will often have to file a zero wage 941. Any ongoing entity with payroll during the year, and the IRS expects 4 941's or if allowed, a 944. Even the option to tell the IRS there are no more 941's for the year is not something I suggest as it is cleaner to have 4 per year.

[gfizer]

In my situation, they are going to issue a 1099-NEC for the total amount paid, showing both the salary portion AND the housing portion as non-employee comp.

[Medlin Software, Dennis]

1 minute ago, gfizer said:

In my situation, they are going to issue a 1099-NEC for the total amount paid, showing both the salary portion AND the housing portion as non-employee comp.

That stinks. Sadly many people make mistakes. More common when there are .volunteers. Likely no one in the church office knows the proper method (as no one with proper knowledge is reviewing/preparing), so I would start with the person who is in charge of finances, or better yet, the paid accountant/tax preparer for the church. If there is more than one clergy person, get together and speak as a group. Don't delay, as the HA incorrectly reported will me major $ if not corrected.

[schirallicpa]

[DANRVAN]

1 hour ago, gfizer said:

they are going to issue a 1099-NEC for the total amount paid, showing both the salary portion AND the housing portion as non-employee comp.

If that is the case then you will need to report it on Schedule C and then back out housing allowance.

Your client probably does not want to go the SS-8 route.

 

1 hour ago, Medlin Software, Dennis said:

start with the person who is in charge of finances, or better yet, the paid accountant/tax preparer for the church. If there is more than one clergy person,

But that can take a lot of time an energy for someone who is only getting paid to prepare a tax return.

I have been down that road before,  finally threw my hands up and fixed it on Schedule C.

 

[Medlin Software, Dennis]

A church should be the ONE employer who is likely to fix their mistake in a timely fashion. It is on the TP to get fixed, or pay the preparer to push for fix. If I were the employee, and it cost me anything for the error, even to pay a preparer to get the fix done (extra time to report.back out, or push for proper W2), I would be billing my employer.

But, I an hugely jaded after 40+ years of payroll, and an employer who cannot do their duty should be held to task.