Are You Aware of These Tax Forms?

Written by Raul Rivera on Apr 02, 2019 in IRS Compliance

Every day at StartCHURCH, we receive many calls from pastors asking about various compliance and tax-related topics. With tax season around the corner, the number of calls we receive doubles. 

Pastors and ministry leaders want to know what forms they need to file with the IRS, what the difference is between a W-2 and a 1099, and if they need to file Form 990 for their organization. 

It is important to know that your ministry is responsible for filing the correct forms.

In this blog, I will share about the 10 forms you need to be aware of for your ministry.

Federal tax forms

Forms W-9 and W-4:

Your ministry is required to collect information from employees, including the pastor, using Form W-4. This form is used to inform the employer how much the employee wants to withhold from his or her paycheck for federal taxes. 

Furthermore, your ministry is required to collect information from guest speakers using Form W-9. This form is an internal form used to help your ministry issue a 1099-MISC at the end of the year. Form W-9, which I will go over later on in this blog, is given to individuals that are not employees who have received income from your ministry. 

Failure to collect these forms can result in severe fines and penalties.

For example, let's say that your church invites Pastor Dave to preach at a revival service. After he preaches, the church takes up an offering of $1,000. However, the church does not collect his Form W-9 from him. 

According to the law, in this particular situation, the church is liable for a 28% tax on the love offering. Therefore, it is absolutely necessary that your church collects a completed Form W-9 from every guest speaker.

Forms W-2 and W-3:

Many churches employ ministers and other individuals without correctly documenting their salaries and housing allowances. The fact is that 100% of the pastor's salary must be reported on Form W-2. This is true for all other church employees, such as janitors, secretaries, officers, elders, deacons, worship leaders, and anyone else who works for the church.

Form W-3 is a transmittal form that is sent to the Social Security Administration (SSA). This form shows total earnings, Social Security wages and withholdings, and Medicare wages and withholdings for all employees during the previous tax year. This form is sent with “Copy A” of Form W-2 for all employees.

Too often our bookkeepers see a pastor’s Form W-2 that is completed incorrectly. When reporting a pastor's income on Form W-2, his or her salary minus the qualifying housing allowance should be inserted on line 1. Lines 3, 4, 5, and 6 must be left blank since the pastor is responsible for withholding and paying his or her own taxes. Lastly, the housing allowance is reported on line 14 of Form W-2.

Forms 1099-MISC and 1096:

Far too often churches distribute 1099s to the wrong individuals. The pastor, worship leader, and others who work for the church on a regular basis should not receive a 1099-MISC from the church. This form is for contractors who are not considered employees of the church. To determine whether or not an individual is an employee, you can use common-law rules as described in IRS Publication 15-A. 

Form 1096 is similar to Form W-3 in that it is a one-page summary which indicates the totals of the Form 1099-MISC informational returns that you are submitting to the IRS.

If your church needs assistance with completing and filing these forms, we have a service that can help! Our experienced CPAs can help you complete and file these forms. Give us a call today at 877-494-4655. 

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Forms 941 and 944:

If your church has more than one employee, then it is required to file a quarterly Form 941. This form needs to reflect the total wages subject to federal income tax withholding, Social Security and Medicare tax, as well as the amount of tax withheld and sent to the IRS.

If the minister is the only person receiving compensation and he or she does not have a voluntary withholding agreement in place, the church technically does not have to file a quarterly Form 941. However, it is recommended that your church still file Form 941.

In this instance, you would simply insert $0.00 on Form 941 since ministers are responsible for withholding their own taxes. Most likely, once the IRS has received (over the course of a year) multiple Form 941s with $0.00, it will send you a letter requesting that the church instead file an annual Form 944.

Take note that once your church begins paying a non-ministerial employee, it will be responsible to file a quarterly Form 941.

Form 990:

Churches are exempt from filing Form 990. All other tax-exempt organizations must file Form 990 to maintain their tax-exempt status. There are three different 990 forms with which you should be familiar:

  • Form 990 long: File this form if the organization’s gross income is $200,000 or more, or its assets are worth $500,000 or more.
  • Form 990-EZ: File this form if the organization’s gross income is more than $50,000, but less than $200,000, and its assets are worth $500,000 or less.
  • Form 990N (e-Postcard): File this form if the organization’s gross income is less than $50,000. This is a simple electronic postcard form. We can assist your ministry with any of these Form 990s; just call us at 877-494-4655.

Form 990-T:

This is a form that churches and ministries often overlook. Any nonprofit organization that has earned gross unrelated business income of $1,000.00 or more must file Form 990-T. This is a tax form that is used to collect income tax earnings generated from unrelated business activities.

State filings

State annual report:

Over 39 states require that you file an annual report, while many other states require a biennial or periodic report. It is important that you file this report by its deadline. Failure to file this report can cause your organization to be listed as inactive by the secretary of state, or it can even lead to administrative dissolution.  

Property tax exemptions:

If your ministry purchased any real estate in 2018, now is the time to go to your county property tax assessor and request a property tax exemption form for your church. Most counties have a very specific deadline for this form. Property tax exemption is only available in certain states. Simply give us a call at 877-494-4655, and we can assist you with navigating this exemption.

Internal church documents

Donor giving receipts:

We recommend that contribution statements be issued to donors by January 31st. Although the deadline has passed, you can still learn more about the specifics of donor giving receipts and your responsibility. Click here to learn more. 

If you don't have the right tools to help you manage and track your donations, consider Kingdom Steward. This software program makes it simple and easy to issue your donors charitable giving receipts at the end of the year.

Profit & loss reports:

Profit and loss reports help you understand how your ministry spent the funds it received in the year. This is important because it helps you with analyzing how well you followed your budget and how you can to improve. It is vital that your organization keeps its books during the year so that this report is ready to go for you at the beginning of the year. Our StartCHURCH Bookkeeping service was created to help you with this task. For more information, give our office a call at 877-494-4655. 

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Board meeting minutes:

By now, your organization has most likely held its first board meeting of the year. However, without board meeting minutes, your board meeting is simply a time of fellowship. Board meeting minutes are arguably the most important administrative documents that your organization must maintain.

Minutes serve as the documentation of the corporate acts of your organization. Without board meeting minutes, your organization cannot substantiate that the board properly approved decisions such as adding or removing board members, adopting bylaws and policies, or approving salaries.

Gaining understanding

Proverbs 3:13 says, Blessed are those who find wisdom, those who gain understanding.” I am continually learning about new IRS codes and laws. Every time I come across new information, I thank the Lord for giving me wisdom and understanding in this area. 

Taking all of these forms into consideration will help strengthen you and your ministry. We are here to help empower you and to help guide you through these requirements. If you have any questions about any one of these forms, feel free to reach out to us at 877-494-4655

Please feel free to comment. We always appreciate good dialogue. However, we do moderate each comment to ensure that it is on topic and not derogatory to other participants. We ask that you keep your comments brief and pertinent to the topic so that others may benefit.

Raul Rivera

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