Q: We’d like to pay an annual honorarium of $1,000 to each member of our church board as an expression of appreciation for their service. Are there any legal or tax implications we should be aware of?
Legal and Tax Considerations for Honoraria
Paying honoraria to church board members involves several legal and tax considerations. Below are seven key issues to consider:
1. Workers’ Compensation
Workers’ compensation laws may classify board members receiving honoraria as “employees.” If so, churches must provide workers’ compensation insurance for work-related injuries or illnesses. Consult your workers’ compensation insurer to confirm your state’s requirements.
2. Employee Polygraph Protection Act
The federal Employee Polygraph Protection Act protects employees, including compensated board members, from being subjected to lie detector tests. Avoid suggesting or requesting such tests without legal advice.
3. Tax Withholding Obligations
Honoraria for board members may require tax withholding. Here’s how it works:
- For officers receiving honoraria, churches must withhold income and Social Security taxes.
- Directors receiving honoraria of $600 or more should receive a Form 1099-MISC for self-employment tax purposes.
Consult the IRS guidelines for Form 1099-MISC for detailed information.
4. Limited Immunity from Liability
Some state laws limit the liability of uncompensated church board members. Compensating board members may remove this protection. Verify how honoraria impact liability protections under state law or the federal Volunteer Protection Act.
5. Employment Discrimination Laws
Compensated board members may fall under state or federal employment discrimination laws. Confirm the implications of honoraria payments to ensure compliance.
6. Immigrant Status
If board members are non-citizens, paying honoraria could create legal complications based on their immigration status. Consult legal counsel to address potential risks.
7. Recommendations for Best Practices
The Independent Sector discourages compensating board members unless necessary. If compensation is provided, it should be based on a review of comparable organizations’ practices. Consider whether this aligns with your church’s governance standards.
Practical Steps for Churches
To navigate the complexities of paying honoraria, consider these steps:
- Consult with legal counsel regarding state-specific laws.
- Verify tax withholding and reporting obligations with a tax professional.
- Assess how compensation impacts liability protections for board members.
FAQs About Paying Honoraria to Church Board Members
- Does paying honoraria make board members employees?
It depends on your state’s workers’ compensation laws and the board member’s role. - Are honoraria taxable?
Yes, honoraria are taxable and may require reporting on Form 1099-MISC or W-2, depending on the individual’s role. - Can compensated board members lose liability protection?
In some states, yes. Compensation may remove immunity under limited liability laws. - How should churches determine honorarium amounts?
Review practices of similar organizations and consult legal and financial experts.
Paying honoraria to church board members requires careful planning and compliance with legal and tax requirements. Consult professionals to ensure your church adheres to all relevant guidelines.