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Form 941 or 944 - Which Should a Church Use for Payroll Reporting?

Question: 

Are churches required to file a Form 944 annually to report their employees' earnings and tax-withholdings? 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 Techniques Guide explains in further detail a minister's treatments for Social Security, Medicare tax, and income tax withholding. 

Form 941 or 944 must be filed when non-ministerial employees are compensated or when ministers request withholding.

When can a church file the annual Form 944 rather than filing Form 941 each quarter?
  • The IRS may permit the annual filing of Form 944 for employers who have less than $1,000 of withholding taxes to report during the year (only if granted permission by the IRS through correspondence). Once the employer has more than $1,000 to report, the employer must file the quarterly Form 941.
  • Regardless, if the church has non-ministerial employees or has non-mandatory withholding from its minister(s) it must file either Form 941 or, if approved, Form 944.
Here is an excerpt from the Instructions for Form 944: 

Who Must File Form 944?

In general, if the IRS has notified you to file Form 944, you must file Form 944 instead of Forms 941 to report the following amounts. 
  • Wages you have paid 
  • Federal income tax you withheld 
  • Both the employer's and the employee's share of social security and Medicare taxes 
  • Additional Medicare Tax withheld from employees 
  • Current year's adjustments to social security and Medicare taxes for fractions of cents, sick pay, tips, and group-term life insurance
If you received notification to file Form 944, you must file Form 944 to report your social security, Medicare, and withheld federal income taxes for the calendar year unless you contact the IRS between January 1 and April 1 of the calendar year. 


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