Skip to main content

Churches Filing Annual/Quarterly Federal Tax Return

By
Question:

 A church recently received notification of its new federal Employer's Identification Number (EIN) which stated that it must file Form 940, Form 941, and Form 1120. Why does the church have to file these and can it avoid doing so?

 Answer:

 Churches as tax exempt organizations are not subject to filing corporate income tax returns (Form 1120). Further, as tax exempt organizations, churches are not subject to federal unemployment tax (Form 940). 

Most churches are however responsible to file Form 941 on a quarterly basis. On this form, churches report employee earnings and withholdings, and employer taxes due.

 Form 944 may be requested instead of Form 941. But a new employer must request the opt out by calling or writing the IRS. For the opt-out deadline, see Rev. Proc. 2009-51: Rev. Proc. 2009-51. Smaller churches will find it advantageous to file the Form 944 as it is filed only once a year. 

However, some small churches with only a solo-pastor who has no federal withholding submit only an annual Form W-2 and file neither Form 941 nor Form 944. Be aware, once a church begins filing Form 941 or Form 944, the church needs to continue filing even if the church has no employees for a period of time.
Labels:

Comments

  1. Misty BJanuary 14, 2013 at 12:18 AM

    How do I report the pastor's salary on the 941 since he has no withholdings? I was told not to report on a 941 but now my 941's do not match my W2's, so I dont know how to report my W3.

    ReplyDelete
  2. Corey PfaffeMarch 7, 2013 at 11:44 AM

    Misty,
    Report your pastor's taxable salary along with other employees' compensation on Line 2 of Form 941. Do not include housing allowance compensation on any of the Form 941 lines.
    Further, because a minister is not an employee eligible or subject to FICA tax withholding, none of his compensation should be included on lines 5a or 5c.

    ReplyDelete
  3. Elizabeth A.January 3, 2015 at 5:31 PM

    Are churches required to complete Form 941/944 if they have only one employee (the minister) who doesn't have any withholdings? The church has been completing W2s for the minister the past couple of years but has never received a notification to complete Form 941 or 944 - should they start this year?

    ReplyDelete
  4. UnknownJanuary 16, 2015 at 3:23 PM

    Elizabeth,

    I apologize for the late response. In the past two weeks, we have actually been very busy filing Form 941/944 for a number of our clients.

    Some of our clients have received IRS correspondence stating that they are required to file Form 941 or Form 944. After much inconclusive communication between the church and the IRS, some churches opted to file Form 941 and then request permission to file Form 944.

    Each situation is different, we suggest you consult your personal tax professional for guidance on how your church should handle Form 941/944 filings.

    ReplyDelete
  5. Pastor P.May 7, 2021 at 6:12 AM

    I have to file a W2-c. I am a single employee of a local church and do not want to start filing form 941 or 944. We file a W3 and W2 at the end of every year. To file the W2c online with the Social Security administration I was ask what type of Payer. They do not give you an option to move on without selecting one of the options. How should I handle this? If I select regular payer then our church will have to file form 941 or 944. Any suggestions?

    ReplyDelete
    Replies
    1. Brayden ShortMay 10, 2021 at 11:31 AM

      Pastor P.

      All churches fall under Form 941 filing by default, (unless given permission to instead file Form 944), therefore it would be correct to select Form 941 when filing the W-2C. You are correct in assuming that this will likely trigger IRS correspondence requiring the church to file Forms 941.

      Delete

Post a Comment

Popular posts from this blog

Rental of a Church Parsonage to a Non-Minister

By
Question: A church owns a parsonage, but the pastor does not use it as he owns his own home. The church rents the parsonage to a tenant other than a minister or employee of the church. Will the church be responsible for paying income tax on these monies as Unrelated Business Income (filing a Form 990-T) even if the money is used to carry on the business of the church? Answer: Whether the money is used for church purposes is irrelevant.  IRS Publication 598  states: "If an exempt organization regularly carries on a trade or business not substantially related to its exempt purpose, except that it provides funds to carry out that purpose, the organization is subject to tax on its income from that unrelated trade or business." Fortunately, in the case of rental income from real property, such income is "excluded in computing unrelated business taxable income" (Publication 598). Caution: see content below regarding debt-financed property.  However, a second concern not a...
Post a Comment
Read more

How can my ministry expenses be covered by the church?

By
     How can my ministry expenses be covered?                            Many ministers use their personal autos for ministry purposes. Their employers can reimburse these costs using a standard mileage rate published by the IRS. The per mile rate represents employees’ entire reimbursable cost other than highway tolls and parking tabs. If not covered by use of the ministries’ credit card, other costs can be reimbursed as well—business and travel meals, lodging, office supplies, and professional library purchases among them. Some ministries reimburse travel costs using per-diems published by the IRS. If employee business expenses are not reimbursed, the personal tax deduction benefit to the individual minister is severely limited. Non-taxable reimbursements after documentation is provided to the employer follows IRS rules for accountable plans. Non-taxable cash advances before expenses are in...
Post a Comment
Read more

What is the best retirement account for a Minister?

By
       What are my options for retirement savings?                  Regardless of options, start now! You probably have learned about traditional and Roth IRAs. We have often found them well short of the benefits we will share here regarding Internal Revenue Code section 403(b) plans. These plans must be established by your employer (although you might need to be the initiator). They are funded in two ways—withholding from your paycheck at your option (called “elective deferrals”) and as initiated by the employer (matching or non-elective contributions). These contributions not only save income tax, but they also reduce the income you must report as subject to the 15.3% SECA tax. Further, at retirement with the cooperation of your church or Christian ministry the distributions to you can be tax-free to the extent of your qualified housing expenses. Many ministries also adopt what are often called “FICA alternative” be...
Post a Comment
Read more