Skip to main content

Form 1099-MISC Failure to File Penalties Update For Churches and Christian Ministries

By Anonymous
Question:

What are the consequences for a church or Christian ministry failing to file a required Form 1099-MISC?

Answer:

An organization that fails to file a Form 1099-MISC as required by the IRS and cannot show reasonable cause may be subject to severe financial penalties, as outlined in the IRS instructions (Section O. Penalties) for the form:
  • $50 per information return if you correctly file within 30 days; maximum penalty $547,000 per year ($191,000 for small businesses)
  • $100 per information return if you file correctly more than 30 days after the due date but by August 1; maximum penalty $1,641,000 per year ($547,000 for small businesses)
  • $270 per information return if you file after August 1 or you do not file required information returns; maximum penalty $3,282,500 per year ($1,094,000 for small businesses)
Based on these penalties, churches should be mindful of the filing requirements. 

The most common expenditures that churches make subject to Form 1099-MISC reporting relate to compensation of independent contractors and rental payments for facilities.  Typical independent contractors include guest speakers, outside lawn care, snow removal, and janitorial services by non-employees, etc. 

 According to the instructions, a church must "File Form 1099-MISC, Miscellaneous Income, for each person to whom you have paid during the year...at least $600 in rents (and other non-employee payments for services) and for whom you have withheld any federal income tax under the backup withholding rules regardless of the amount of the payment." More on backup withholding below.

Form 1099-MISC reporting only applies to payments that are made in the course of a trade or business. The IRS also instructs that "nonprofit organizations are considered to be engaged in a trade or business and are subject to these reporting requirements." 

There are exceptions to this requirement, including payments made to a corporation or other Internal Revenue Code 501(c)(3) organizations. A full list is available on the IRS website within the Form 1099-MISC instructions. 

 To assist in the compliance with these requirements, Form W-9 must be requested from payees. MinistryCPA advises that payments to independent contractors and landlords should not be made until a valid Form W-9 is received. Without this information, IRS backup withholding rules may apply that mandate 24 percent federal income tax withholding. 

 For more posts on this topic, please type "1099-MISC" in the blog's search window.



Labels:

Comments

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

Review: Form 1099 Payments to 501(c)(3) Organizations

By Anonymous
Question: A church rented space from another church last year. Should it request a completed Form W-9 and issue Form 1099-MISC? Answer: Payments from one 501(c)(3) organization to another 501(c)(3) organization are not subject to Form 1099-MISC reporting. The IRS Instructions for Form 1099-MISC state that "payments to a tax-exempt organization" are exempt from reporting a Form 1099-MISC.  The following are typical examples of payments of $600 or more by a church which are subject to reporting a Form 1099-MISC: Rent paid to an individual (non-corporation) Payments for services rendered by individuals who are not employees (e.g. janitorial service, facilities, snow removal, guest speakers) Support sent directly to missionaries
2 comments
Read more

Form 944 or 941 Filing for Churches

By Anonymous
Question:   A new church filed for an employer identification number (EIN) recently. It received notification from the IRS about the EIN, stating that the church must file Form 944 by the following January deadline. The church has no non-ministerial staff members. Since income tax withholding is elective by ministers and none of the pastors has elected to request non-mandatory withholding is the church required to file Form 944 annually? Also, a quarterly Form 941 (rather than an annual Form 944) is required of some employers. Which IRS form, if any, should be filed? Answer: According to IRS Section 1402(c) and 3121(c), ministers are not subject to mandatory income tax withholding. Unless one or more ministerial employees request non-mandatory withholding, church employers with only ministerial employees do not need to file Form 941 or Form 944.  The IRS  Ministers Audit Technique Guide  explains in further detail a minister's treatments for social security, Medicare tax, Fed
Post a Comment
Read more