Year-end tax reporting can cause great anxiety for church treasurers and financial secretaries when it comes to filing the proper tax forms with the Internal Revenue Service. One huge question is Who gets a Form W-2 and who gets a Form 1099-Misc?
Each individual case should be considered separately, but it’s important to understand the basic guidelines for analyzing which form an individual should receive for their services.
As a general rule, a W-2 should be given to an employee of an entity, while a 1099-MISC should be given to an independent contractor. That brings up this question: How do I know if someone is an employee or an independent contractor? Sometimes this question is a little difficult to answer.
The Internal Revenue Service website provides publications that can help you decide whether someone is an employee or an independent contractor. Publication 1779 (https://www.irs.gov/pub/irs-pdf/p1779.pdf) shows three categories to examine: behavioral control, financial control and relationship of the parties. As this document states, all details and facts about the individual’s work must be considered; no single fact can provide a clear answer. Each of these categories should be carefully reviewed to determine an individual’s status. If additional assistance is needed in determining a status, Form SS-8 can be filed with the IRS, which will ask them to decide for you. Additional information on Form SS-8 can be found at https://www.irs.gov/uac/Form-SS-8,-Determination-of-Worker-Status-for-Purposes-of-Federal-Employment-Taxes-and-Income-Tax-Withholding.
If the individual is classified as an employee, all payments made to them and taxes withheld should be reported on a W-2 form. According to the IRS:
“Every employer engaged in a trade or business who pays remuneration, including noncash payments of $600 or more for the year (all amounts if any income, social security, or Medicare tax was withheld) for services performed by an employee must file a Form W-2 for each employee (even if the employee is related to the employer) from whom:
— Income, social security, or Medicare tax was withheld.
— Income tax would have been withheld if the employee had claimed no more than one withholding allowance or had not claimed exemption from withholding on Form W-4, Employee’s Withholding Allowance Certificate.”
Information on completing W-2 forms can be found on the IRS website at https://www.irs.gov/uac/Form-W-2,-Wage-and-Tax-Statement.
If the individual is classified as an independent contractor, a 1099-MISC form might be required. Below is detail from the IRS about when a 1099-MISC form should be completed for an independent contractor:
“File this form for each person to whom you have paid during the year:
— at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest;
— at least $600 in rents, services (including parts and materials), prizes and awards, other income payments, medical and health care payments, crop insurance proceeds, cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish, or, generally, the cash paid from a notional principal contract to an individual, partnership, or estate;
— any fishing boat proceeds,
— gross proceeds of $600, or more paid to an attorney during the year, or
— withheld any federal income tax under the backup withholding rules regardless of the amount of the payment.”
Information on completing 1099-MISC forms can be found on the IRS website at https://www.irs.gov/uac/Form-1099-MISC,-Miscellaneous-Income-.
There is no clear-cut, easy answer to the question, “Should I send this person a 1099-MISC form or a W-2?” It is very important to keep in mind all the details of the individual’s role and work when determining how payments should be recognized. The IRS resources will help you find answers as your entity faces this question.
Jill Herren is an accounting supervisor with the Tennessee Baptist Convention. To connect with Jill about these and other similar questions, email her at firstname.lastname@example.org.