Most churches are subject to new federal reporting requirements [Reporting Requirements for Churches]
Article summary. Congress enacted comprehensive welfare reform legislation a few years ago that contained a provision requiring employers to report all “new hires” to a designated state agency. The purpose of this reporting requirement is to reduce welfare payments by locating “deadbeat dads” who are ignoring or avoiding child support orders. Churches are subject to the new reporting rules. This article explains how your church can comply with the new rules.
In 1996 Congress enacted the Personal Responsibility and Work Opportunity Reconciliation Act, popularly known as the “welfare reform” bill. The Act had many provisions designed to reduce welfare payments and address welfare fraud. One of these provisions requires employers to report all “new hires” to a designated state agency. The purpose of this requirement is locate “deadbeat dads” who avoid their child support obligations by changing jobs and their place of residence. Forcing these persons to honor their support obligations will enable many women to go off welfare. Another purpose of the new law is to reduce fraudulent unemployment benefits payments to persons who are working.
Technically, states are not required to mandate new hire reporting. But, if they fail to do so, they will forfeit federal funding under certain programs. To date, all states have enacted legislation mandating new hire reporting, and the laws of all 50 states are summarized in a table that accompanies this article.
The new hire reporting requirements apply to all “employers.” The new law uses the same definition of “employer” as is contained in section 3401(d) of the tax code. This definition defines an employer as “the person for whom an individual performs or performed any service, of whatever nature, as the employee of such person.” This definition contains no exception for religious organizations. And, there is no exception for “small” employers having only one or two employees. But remember-reporting is only for new hires, as defined by state law. This generally will be any employee hired after a date specified by state law.
How it Works
When employers (including churches) report new hire information to their designated state agency, the agency will match the information against its own child support records to locate parents and enforce existing child support orders. Once these matches are done, the information is sent to the “National Directory of New Hires,” so other states can compare the information with their own child support records. The information also will be shared with state welfare and unemployment agencies, to detect and prevent fraudulent or erroneous payments.
The federal welfare reform legislation requires that employers include the following information in their new hire reports:
- employee’s name
- employee’s address
- employee’s social security number
- employer’s name
- employer’s address
- employer’s federal employer identification number (EIN)
Note that most of this information is contained on the W-4 form (“withholding allowance certificate”) completed by each new employee at the time of hire, and as a result most states allow employers to comply with the reporting requirements by sending copies of each new W-4 form completed by a newly hired employee.
• Key point. The employer’s federal identification number is inserted on line 10 of Form W-4 only when the form is sent to the IRS. Since this happens infrequently, the employer’s identification number generally does not appear on the form. So, for an employer to use W-4 forms to comply with the new hire reporting requirements, it must manually insert its federal employer identification number (EIN) on line 10. The employer’s name and address may need to be manually inserted on line 8.
• Key point. Some states ask employers to voluntarily report additional information, such as date of hire, or medical insurance information. A summary of each state’s law is contained in a table in this newsletter.
The deadline for filing a report is specified by state law. However, it may not be later than 20 days after an employee is hired.
Most states allow employers to comply with the new hire reporting requirement in any one of three ways:
(1) Electronic or Magnetic Reporting
Some states permit employers to report by electronic file transfer (EFT); file transfer protocol (FTP); magnetic tape; or 3.5 inch diskette.
(2) Fax or Mail
Most states permit employers to fax or mail any one or more of the following:
- A copy of a new employee’s W-4. Be sure it is legible, and that the church’s federal employer identification number (EIN) is included on line 10. Also be sure that the church’s name and address are included on the form.
- A printed list.
- A new hire reporting form provided by your designated state agency.
• Key point. If your church hires new employees infrequently, the easiest way to comply with the reporting obligation may be to use the state reporting form. Simply complete one form with your federal employer identification number, name, and address, and then make several copies. This way, you will only need to add an employee’s name, address, and social security number when a new employee is hired.
(3) Voice Reporting
In some states, employers can report new hires by leaving a voice message on a special voice response system.
• Key point. Be sure to check with your designated state agency to find out what reporting options are available in your state. Telephone numbers for all state agencies are included in a table in this newsletter. Use the option that is easiest for you.
• Key point. Does your church use a payroll reporting service? If so, it may be automatically making the new hire reports for you. Check to be sure.
The federal welfare reform law prohibits states from assessing a penalty in excess of $25 for each failure to report a new hire. However, states may impose a penalty up to $500 if an employer and employee “conspire” to avoid the reporting requirements, or agree to submit a false report.
Employees in More than one State
Some denominational agencies and parachurch ministries have employees in more than one state. How do they comply with the new hire reporting rules? They may report newly hired employees to the state in which the employees are working; or, they may select one state to receive all new hire reports. If one state is selected, the employer must submit new hire reports electronically or by magnetic tape. The employer should check with the designated state agency to discuss the technical requirements for such a report.
• Key point. “One state” reporting requires new hire information to be reported twice a month, not less than 12 nor more than 16 days apart.
• Key point. A multistate employer that elects to report all new hire information to one state must inform the Secretary of the United States Department of Health and Human Services of its decision, by writing National Director of New Hires, DHHS-OCSE, Multistate Employer Registration, P.O. Box 509, Randallstown, MD 21133.
The application of the new hire law to churches is illustrated in the following practical examples:
• Example. A church hires a full-time office secretary in July of 1999. The pastor has learned of the new hire reporting rules, but assumes that the church is exempt. This assumption is incorrect. The new hire reporting law defines an employer as “the person for whom an individual performs or performed any service, of whatever nature, as the employee of such person.” Since a full-time office secretary hired by a church will always be an employee, the church is an “employer” subject to the reporting requirements.
• Example. Same facts as the previous example. What are the legal consequences of failing to comply with the new hire reporting requirements? The church would be subject to a penalty of up to $25, depending on state law.
• Example. A church treats all of its nonminister staff as “self-employed” persons in order to avoid any payroll tax reporting obligations and the new hire reporting requirements. The church has five nonminister workers, all of whom work full-time. It is virtually certain that all the nonminister workers are in fact employees rather than self-employed. As a result, the church is subject to significant penalties for failing to comply with the payroll tax reporting rules, and will be subject to a penalty of up to $25 (as determined by state law) for each new hire that is not reported to the designated state agency. If the agency determines that the church and its workers “conspired” to avoid the reporting requirement, then it may be able to assess a penalty of up to $500 per worker.
• Example. A church would like to hire Brad as a custodian. Brad asks the pastor if the church complies with the new hire reporting law. The pastor informs Brad that it does. Brad reveals that he has not been honoring a child support obligation based on a court order in another state, and says that his life “will be ruined” if the pastor reports him. He assures the pastor that he is doing his best to comply with the order, but needs more time to “work things out.” The pastor agrees not to report Brad as a new hire. The church is subject to a penalty of up to $500 as provided by state law.
• Example. A church hires Rev. D as a youth pastor. Rev. D asks to be treated as a self-employed worker for federal income tax reporting purposes. The church agrees to do so. The church treasurer assumes that since Rev. D is “self-employed” for tax reporting purposes, the new hire reporting requirement does not apply to Rev. D. This assumption is incorrect. As a full-time youth pastor, Rev. D is almost certainly an employee for federal income tax reporting purposes. This in turn makes the church an “employer” subject to the new hire reporting requirement.
• Example. A church hires a part-time custodian who will work less than 10 hours each week for an hourly rate of pay. The church will exercise little if any control over the methods the custodian will use in performing custodial services. The custodian probably is self-employed for federal income tax reporting purposes. As a result, the church is not an “employer,” and the new hire reporting requirement does not apply to this worker.
Complying with the New Hire Reporting Requirement
A state-by-state summary
Note: Explanation of codes used in this table: A (W-4 information, including employee’s name, address, social security number, plus the employer’s name, address, and employer identification number); B (state employer identification number); C (date of hire); D (date of birth); E (salary); F (employer contact person and phone number); G (medical insurance information). Code letters in brackets (e.g., [A]) refer to information that may voluntarily be reported by an employer, but which is not required by law. Be sure to check with your designated state agency for the most up-do-date information.
StateWhat to reportWhen to report (days after hire)PenaltyTelephone assistance
|AK||A||20||$10 ($100 for conspiracy)||907-269-6685|
|CA||A,B,C||20||$24 ($490 for conspiracy)||916-657-0529|
|DE||A||20||$25 ($500 for conspiracy)||302-369-2160|
|DC||A,C,D,E [F,G]||20||$25 ($500 for conspiracy)||888-689-6088|
|HI||A||20||$25 ($500 for conspiracy)||808-586-8984|
|IL||A [C]||$15 ($500 for conspiracy)||800-327-4473|
|IN||A||20||$500 for conspiracy||800-437-9136|
|IA||A,D,F||15||contempt of court||515-281-5331|
|KY||A||20||$250 for third and each additional offense, and conspiracy||800-817-2262|
|LA||A||20||$25 ($500 for conspiracy)||888-223-1461|
|ME||A,B,D||7||written warning for first offense; up to $200 for additional offenses||207-287-2886|
|MD||A,B,C||20||$20 ($500 for conspiracy)||888-634-4737|
|MA||A,C||14||$25 ($500 for conspiracy)||617-577-7200|
|MN||A [D]||20||$25 ($500 for conspiracy)||800-672-4473|
|MS||A,B,C,D||15||$25 ($500 for conspiracy)||800-866-4461|
|MO||A [C]||20||$25 ($350 for conspiracy)||800-859-7999|
|state||what to report||when to report (days after hire||penalty||telephone assistance|
|NJ||A,D||20||$25 ($500 for conspiracy)||609-588-2355|
|NM||A||20||$20 ($500 for conspiracy)||888-878-1607|
|NY||A||20||$25 ($450 for conspiracy)||800-972-1233|
|NC||A,B||20||$25 ($500 for conspiracy)||888-514-4568|
|ND||A||20||$25 ($250 for conspiracy)||800-755-8530|
|OH||A,C,D||20||less than $25 ($500 for conspiracy)||800-208-8887|
|PA||A,C,G||20||warning for first offense; $25 for additional offenses ($500 for conspiracy)||888-724-4737|
|RI||A,D,F||14||$25 ($500 for conspiracy)||888-870-6461|
|SC||A||20||$25 for second and additional offenses ($500 for conspiracy)||800-768-5858|
|TN||A||20||$20 ($400 for conspiracy)||888-827-2280|
|TX||A||20||$25 ($500 for conspiracy)||888-839-4473|
|UT||A||20||$25 ($500 for conspiracy)||801-526-4361|
|VT||A||20||$25 ($500 for conspiracy)||802-241-2194|
|WA||A,D||20||$25 ($500 for conspiracy)||800-562-0479|
|WV||A [D,E]||14||$25 ($500 for conspiracy)||800-835-4683|
|WI||A,C,D||20||$25 ($500 for conspiracy)||888-300-4473|
© Copyright 1999 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m43 c0399