October 26, 2012

Classifying Church Leaders as Non-Employees

Question:

A church wishes to pay several of its key leaders a monthly amount of about $250 per individual. Is it possible to do this without them becoming employees? If so, what are the limitations to the church compensating to them?

Answer:

It must be determined whether these individuals are employees or non-employees. Details within the answer provided in an April 21, 2009, blog post will help in determining this.

Church Worker: Employee or Independent Contractor

Since the church, it is assumed, controls what the key leaders do, they will most likely be considered employees. In the rare situation that key leaders could be classified as non-employees, the church must issue Form 1099-MISC to individuals whose compensation is $600 or more. But we can only think of one example of non-employee status in the situation of compensating "key leaders" -- circuit-riding preachers of a day gone by.
  
For the sake of information, a second issue to consider here is whether their jobs are ministerial in nature. 

Non-ministerial compensation is subject to FICA and income tax withholding, and not eligible for housing allowance. Ministerial income is, by statute, not subject to mandatory withholding and eligible for housing allowance and otter benefits limited to ministers. Both classes of employee receive Form W-2.

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