When to Use W-9 and File 1099
We understand that pastors and church staffs are issued W2s, but many churches fail to properly file 1099’s. Churches, other nonprofits, and businesses are required to issue a W-9 to contractors, unincorporated landlords, and to guest ministers, guest speakers, guest singers, guest musicians for any (honorariums) they will pay $600 or more during a calendar year.
The person is to complete the form and give it to church staff who then uses it to properly complete the 1099 that is later mailed to the payee for tax reporting.
To help ensure you have accurate information in time to file 1099’s, it is a good practice to have your guest complete the W-9 form before services are rendered in time for you to proof it for omissions and errors. This is critical with the implementation of “The Small Business Jobs and Credit Act of 2010” that increases fees for errors, omissions, and filing late.
Remember Pastors are to receive a W-2, not a 1099. This is not referencing when a pastor has a ministry engagement at another church and is treated as a contractor and receives a 1099. This is referring to when a pastor works for a church in the position of a pastor.
Things to Know:
- While the payee is required to complete Form W-9, he or she is not legally required to sign the form W-9 unless he/she has been notified that he/she previously gave an incorrect TIN.
- It is your church’s legal obligation to have the W-9 completed. If the person refuses to complete W-9, you are legally required under IRS guidelines to withhold 28% from the check to send to IRS. Your responsibility is to the church and to ensure that you do not put it at risk because of fear or awkwardness. This means if the check is $2,500 you are to deduct 28% of it and send to the IRS.
- If your church fails to obtain a completed W-9 and then does not withhold backup withholdings, it subjects your church to being assessed tax at the 28% backup withholding rate, as well as interest and penalties for lack of compliance.
- The name on the W-9 MUST match the name on the check. Some churches fail to ensure that the name on the check is the same as the name on the W-9. This is not just referring to misspelling a name, but putting a completely different name on the check. For example, your church may have booked an gospel singer name John Doe and make the check payable to John Doe. However, the W-9 that John Doe submitted is for Doe Enterprises, Inc. That means the check was written to the wrong party, which means the name on the check does not match and the SS# does not match, as the corporation has a FEIN not SS#. Usually the name you wrote the check to is the name you put on the 1099. In this case your church will be fined if this is not corrected within the 30-day period of filing the 1099. Also, in this instance, no 1099 should had been filed, because the check should have been made payable to a corporation, not an indvidual.
What to do with the Form W-9:
No later than January 31
- Issue 1099-MISC Form (“statement for recipient of miscellaneous income”) to any self-employed person to whom the church paid non-employee compensation of $600 or more within the year. There are some exceptions to who receives this. (Corporations do not receive 1099.) In other words if you make a payment to Jaxton Taklor Ministries, Inc. and the check is made payable to the ministry and not the individual, you do not need to issue a 1099). For example, when you have a contractor or guest minister (singer/band, etc) and you know you will be paying an honorarium of $600.00 or more for the year, you must have the minister to complete a form W-9 prior to paying him. Some churches have all visiting ministers to complete a form 1099 regardless of the amount of the honorarium, as they may have the minister to return later within the year. A good church management software, such as PowerChurch or ACS tracks the amounts for you and if the amount reaches $600 by the end of the year a 1099 will be printed for it.
Below you can see the Form W-9 and its instructions.
New Laws Affecting Churches:
The Small Business Jobs and Credit Act of 2010″ increased penalties for failure to file information returns, failure to furnish correct payee statements, and for intentional disregard of the law. (see our article on this).
The information contained in this blog is general in nature and is not intended to provide, or be a substitute for, legal analysis, legal advice, or consultation with appropriate legal counsel. You should not act or rely on information contained in this training without seeking appropriate professional advice.
IRS Circular 230 Notice: United States Department of the Treasury Regulations require us to inform you that to the extent this training and any resources mentioned hereto concerns tax matters, it is not intended nor disseminated to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by United States Internal Revenue Code.
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