IRS Private Letter Ruling 9830008
Background. Every church has one or more custodians, and it is important for church treasurers to properly classify these workers as employees or self-employed. There are many reasons why this task is important, including the following:
• W-2 or 1099? Churches issue a W-2 to employees at the end of the year reporting wages paid and taxes withheld. Churches issue a 1099 form to self-employed persons who are paid at least $600 during the year.
• 941 forms. Churches that are subject to income tax withholding, social security taxes, or both, must file Form 941 quarterly. No entries are made for self-employed workers, since they are not subject to tax withholding and they do not pay social security or Medicare taxes (they pay the self-employment tax).
• Tax withholding. Churches must withhold federal income taxes and the employee's share of social security and Medicare taxes from the wages of most nonminister employees. Self-employed workers are not subject to federal tax withholding (other than "backup withholding," which applies if a self-employed worker fails to provide an employer with a social security number).