Form 990 Return of Organization Example from Income Tax
Most tax-exempt organizations are required to file Form 990 on an annual basis. Local churches should not file this form. The General Council on Finance and Administration files Form 990 for the entire denomination. Unlike most tax filings, Form 990 is available for review by the public. If a local church receives a request for a copy of Form 990, the church has a duty to comply with that request.
Indpendent Contractor V. Employee Status
Independent contractor v. employee status is a question local churches may face in dealing with persons who provide services to the local church for compensation. Generally, most people providing to the local church for compensation will be employees and will be subject to withholding, Social Security and Medicare taxes.
Independent contractors are not subject to these taxes. (However, they may be subject to Form 1099 reporting requirements.) Classification as an independent contractor is based on the facts and circumstances in each case.
As a general rule, independent contractors are “in the business of providing xyz services”. For example, a custodian who also provides custodial services to other organizations and businesses is likely to be an independent contractor. A custodian that provides custodial services to one local church is an employee of that local church.
There are many other tests to determine if someone is an independent contractor or employee, such as whether or not the person provides their own tools, materials and supplies. If they do so, they are likely to be a independent contractor. If the local church provides these items, they are likely to be an employee.
Unfortunately, there are no clear cut rules or guidelines that allow for an easy determination of independent contractor or employee status. Each case is based on its own unique facts and circumstances. IRS leans strongly towards classifying anyone providing services for compensation as an employee. If the IRS reclassifies someone treated as an independent contractor to employee status it can assess penalties and interest on the employer.
Local churches that classify individuals providing services for compensation as independent contractors should consider that determination carefully.