Does That Person You Paid Actually Qualify For a 1099?

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A current hot debate in the church world is when a person qualifies for a 1099-MISC for monies they were paid.  The big question is when does a person qualify for a 1099?
OK, I’ll admit, it’s kind of a nerdy topic, but you’ll be thankful you took a few minutes to read what’s next.
do they qualify for a 1099Many churches have unfortunately fallen victim to the idea that they can make the decision on whether or not someone qualifies to receive a 1099 vs. a W-2.
Unfortunately, that decision is not left up to the church.
Some have decided to issue a 1099-MISC because it seems easier.  It’s too tedious to add this person to payroll and we’re only going to pay them one-time.  Adding a person to payroll costs more money so we’ll just do it this way.
The problem with each of those statements is that it is not a decision the church has the authority to make.
The IRS has made it very clear when a person does and does not qualify to receive a 1099-MISC.  They have released a “filter test” form of 20 questions.  Here is a link to the IRS filter test to determine if a person is Self-Employed or a W-2 Employee.  If any one of the questions is true, that person is considered the result of that question (vague right?) Take a look at the form and you’ll get what I mean.
So what now?
Make sure you’re correctly classifying people that you pay individually at your church.
Here’s an example.
We had a church ask us about paying childcare workers.  They had a girl who worked for them one time during the year and wondered if they still needed to pay her through payroll.
It’s easy to attempt to avoid it because for one, there’s a good chance they’ll be paying her less than the $600 threshold where you are required to provide a 1099 MISC.
But let’s change the context.
What if this girl was working for your small business bakery that you owned.  She came by to help ice donuts one day and you paid her cash for her work.  Many in the business world would call this “paying under the table”.
Sounds a bit shady in that context right?
Well the same thing is basically happening in the church childcare scenario.  They are wanting to pay her “under the table” to avoid the work of getting her payroll documents and doing things above reproach.

What are the consequences?

Well, the IRS has been known when a decision has been made that the church paid people incorrectly where the entity (the church) has to pay the amounts that should have been withheld PLUS fines and penalties they can apply.  Where at one time the church was trying to save some money and time, it’s not coming back to bite them.

It’s a very tough situation and in some ways I will agree there seems to be some grey area.  however, do yourself and the church a favor and error on the side of caution.  If you are paying a person, chances are very likely you should pay them as a W-2 employee.
If you’d like to know more about this issue or to have a chat regarding your individual situation, get in touch with us, we’d love to hear your thoughts.

Disclaimer: The information presented in our blog is intended to provide general information for your church.  Because your situation may be fact dependent, please reach out to us or a local church expert for guidance on any specific situation that may pertain to your ministry.

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