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

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. 


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