Churches and ministries everywhere regularly use apps like Venmo, Paypal, and Cash App to easily receive charitable funds from their donors and members.
Starting in 2022, a new tax law went into effect that requires these popular third-party payment processors to report business transactions that meet certain new thresholds to the IRS.
IRS Changes to 1099-K Requirements
As of January 2022, Paypal, Venmo, and Cash App and will report a user’s business transactions to the IRS that meets the following: business transactions through the payment platform that exceed $600 for the calendar year.
Organizations that meet this threshold will receive Form 1099-K from the third-party payment processors.
Prior to this new tax law, these payment apps sent Form 1099-K to users if their gross income exceeded $20,000 or if they conducted 200 separate transactions within the calendar year.
It’s important to note that this new law does not affect the 2021 tax season, but it should be kept in mind when filing taxes for 2022 next year.
How does this new update specifically affect churches and ministries and other charitable contributions? Let’s take a look.
What Churches and Ministries Need to Know
During a church service, conference, or fundraising event, offering a payment app option is a way to help people easily give to your mission. With the recent changes from the IRS, you may be wondering what this means for your ministry.
The new law should not affect churches and ministries too much if you have the following in place:
1. Your church holds 501(c)(3) tax-exempt status
2. Your payment processing accounts are under your church’s name; And
3. Your organization’s FEIN (Federal Employer Identification Number)
What should you do next? As a tax-exempt church or ministry, when you receive a 1099-K from one of these third-party companies, you should simply keep a copy of the form for your tax preparation documents. You will use this information when it comes time to file annual Form 990 in May of this year. (To learn more about Form 990s, click here.)
Although you may receive Form 1099-K, don’t worry! You should not owe any additional tax on these amounts due to your tax-exempt status. You will simply report the information on Form 990.
Get Your Ministry’s Finances in Order Today
However, even if you have the three factors mentioned above in place, you need to make sure your payment accounts are in order—or you could have a surprise on your hands at tax season next year.
Many church planters begin their journey using their personal finances and bank accounts—including payment apps. Maybe you’ve been focused on building your church plant or ministry the last few months, and you haven’t switched over your payment accounts from your personal details to your church’s details. To make sure everything is in order for your ministry, it’s a good idea to take time to audit your payment accounts.
Here are three steps to take:
1. Check your payment accounts and apps to ensure your:
• Your church’s FEIN is correct
• Your church or ministry is listed as the account holder
• Your apps and accounts are connected to the church’s bank account
• Your address and any additional information listed are under your organization’s name and not an individual’s name.
• You may need to set up entirely new accounts if you have everything stored under personal accounts.
2. If you haven’t done so already, start the process of obtaining 501(c)(3) tax-exempt status for your organization to receive tax-deductible contributions.
3. Right now during the start of the year is the perfect time to start the process. Maybe you’ve been holding church services for a few months without it, or you have a dream of starting a church. We know that many pastors hear myths about getting 501(c)(3) tax-exempt status, but in reality, getting your legal foundation in place will protect what God has given you for years to come.
First published on StartChurch.com. Used by permission.