3 Categories of Tax Forms Every Church Needs to Be Award Of

The tax season is fast approaching. If you are wondering which tax forms your church or ministry needs to file to stay in compliance with the IRS, you’re not alone. Many pastors, ministry leaders and church administrators are simply unaware of all of the tax forms needed to stay compliant. 

Here are three categories of forms you should know about:

  1. Federal Tax Forms 
  2. State Filings
  3. Internal Church Documents

 

  1. Federal Tax Forms

Forms W-9 and W-4

Were you aware your ministry is required to collect information from the pastor and employees using Form W-4? Furthermore, do you know that your ministry is required to collect information from guest speakers using Form W-9? In essence, failure to collect these forms can result in stiff fines and penalties.

For example, let us say that your church invites Pastor Jack to preach; after he preaches, the church takes up an offering of $1,000.00. Unfortunately, the church did not have him fill out Form W-9, so according to the law, in this particular situation, the church is now liable for a 28% tax on the love offering. Therefore, make sure that your church collects a completed Form W-9 from each guest speaker.

Forms W-2 and W-3

Did you know that 100% of the pastor’s salary must be reported on Form W-2? This is true for all church employees, such as janitors, secretaries, officers, elders, deacons, worship leaders, and anyone else who works for the church.

Form W-3 is a transmittal form sent to the Social Security Administration (SSA) showing total earnings, Social Security wages and withholdings, and Medicare wages and withholdings for all employees during the previous tax year. This form is sent with “Copy A” of Form W-2 for all employees.

We often see pastors’ Form W-2 completed incorrectly. When reporting a pastor’s income on Form W-2, their salary minus the qualifying housing allowance should be inserted on line 1. Lines 3, 4, 5, and 6 must be left blank since the pastor is responsible for withholding and paying their taxes. Lastly, the housing allowance is reported on line 14 of Form W-2. 

Forms 1099-MISC and 1096

The pastor, worship leader, and others who work for the church regularly must not receive a 1099-MISC from the church. Far too often, churches distribute 1099s to the wrong individuals. 

This form is for contractors who are not considered employees of the church. To determine whether or not an individual is an employee, you can use common-law rules as described in IRS Publication 15-A.

Form 1096 is similar to Form W-3 in that it is a one-page summary that indicates the totals of the Form 1099-MISC informational returns that you are submitting to the IRS.

Forms 941 and 944

If you have more than one employee, you must file a quarterly Form 941. This form needs to reflect the total wages subject to federal income tax withholding, Social Security and Medicare tax, and the amount of tax withheld and sent to the IRS.

Suppose the minister is the only person receiving compensation and they do not have a voluntary withholding agreement in place. In that case, the church technically does not have to file a quarterly Form 941. However, it is recommended that your church still file Form 941.

In this instance, you would insert $0.00 on Form 941 since ministers are responsible for withholding their own taxes. Most likely, once the IRS has received (over a year) multiple Form 941s with $0.00, it will send you a letter requesting that the church instead file an annual Form 944.

Take note that once your church begins paying a non-ministerial employee, you will be responsible for filing a quarterly Form 941.

Form 990

It is important to know that churches are exempt from filing Form 990, but all other tax-exempt organizations must file Form 990. There are three different 990 forms which you need to be familiar with:

Form 990 Long: File this form if your gross income is $200,000.00 or more or your assets are $500,000.00 or more.

Form 990-EZ: File this form if your gross income is more than $50,000.00, but less than $200,000.00, and your assets are $500,000.00 or less.

Form 990N (e-Postcard): File this form if your gross income is less than $50,000.00. This is an electronic postcard form that is very easy to complete. 

Form 990-T

This is a form that churches and ministries often overlook. Any nonprofit organization that has earned gross unrelated business income of $1,000.00 or more must file Form 990-T. This is a tax form used to collect income tax from unrelated business income activities. Unrelated Business Income Tax (UBIT) in the US, Internal Revenue Code, is the tax on unrelated business income, which comes from an activity engaged in by a tax-exempt 26 USC 501 organization that is not related to the tax-exempt purpose of that organization. 

  1. State Filings

State Annual Report

Over 39 states require that you file an annual report, while other states require biennial or periodic reports. It is important that you file this report by its deadline. If you would like more information, we will be happy to look up your state and tell you how we can help.

Property Tax Exemptions

If your ministry purchased any real estate in 2021, now is the time to go to your county property tax assessor and request a property tax exemption form for your church. Most counties have a very specific deadline for this form. This is an exemption that is only available in certain states.

  1. Internal Church Documents

Donor Giving Receipts

Do not forget to issue contribution statements to your donors! It’s important that you have a system to handle donations for your ministry.

Profit & Loss Reports

At the beginning of each year, most churches and ministries prepare accurate profit and loss statements and balance sheets to analyze their financial positions. These reports are helpful to the pastor and board members because they can rely on them to prepare the budget for the upcoming year. Correctly maintaining these reports helps to determine how your ministry can better serve the community and identify what new services it can provide, if any.

Board Meeting Minutes

Without board meeting minutes your board meeting is simply a time of fellowship. Board meeting minutes are arguably the most important administrative documents that your organization must maintain.

These minutes serve as the documentation of the corporate acts of your organization. Without board meeting minutes, your organization cannot substantiate that your organization properly approved decisions such as adding or removing board members, adopting bylaws, policies, salaries, etc.

First published on StartChurch.com. Used by permission.

Valerie West
Valerie West

Valerie West is the billing team lead in the StartCHURCH accounts receivable department.