IRS Form 1099 reports to the Federal government various types of taxable income paid to contractors and vendors. There are versions of the 1099 to report payments for services as well as interest, dividends, and real estate sale proceeds. This form is issued by churches to guest speakers, pulpit supply, etc., who provide services in excess of $600. Churches generally don’t withhold taxes from the payments to these workers. To ensure that your church is in compliance as an employer, a best practice is to require all vendors to complete a W9 upon engagement or before they are able to receive payment.
So what happens if the church does not comply with the 1099 filing requirements? There are different types of penalties for failure to file 1099 with the IRS, intentionally filing incorrectly and failure to provide copies of 1099s to recipients. The penalty types are not mutually exclusive, which means that if you fail to file 1099s with both the IRS and the recipient, the penalties could be double the standard penalty rates.
The penalty for failure to file, which ranges from $30 to $100 per form, with a maximum penalty of $1.5 million per year. This is a big increase from the previous maximum penalty of $75,000 to $250,000 per year. The penalty for intentional failure to file or intentionally filing incorrect information is $250 per form with no maximum.
Establish an automated process for obtaining Form W-9 from all vendors, contractors and service providers to make the reporting process more efficient. This will ensure you have the correct information for preparing a 1099 and will protect you against the requirement to withhold income tax from vendors who do not provide this information to your organization. Maintaining documentation that supports your worker classification will help if you are ever get audited.
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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
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