By JODI SMITH
Director of Connectional Resources
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Back in my days as a CPA, I had the
unpleasant experience of sitting through a
payroll audit for a client.
The IRS was challenging his classification of certain folks as contract labor. My
heart ached for the client as he thought he
was doing the right thing in hiring folks as
jobs came up and issuing 1099s to each of
them at year-end.
But the IRS has strict rules about who
can be classified as contract labor and who
must be on the payroll. Unfortunately, the
fines for misclassification are steep, typically 15.3 percent of gross wages for up to
three years of wages paid plus other possible penalties.
The IRS has published a list of 20
factors that it takes into consideration in
determining whether an individual is an
employee or contract labor. I have republished this list on the North Texas Conference website here, under the
title of “How to Determine If the Person
Working for You Is an Employee or Contract Labor.”
Please note that an individual does not
have to meet all 20 factors to be an employee rather than a contract laborer. The
primary question is how much control the
church has over the method or the results of
the labor. Almost without exception, piano
players, organists, nursery workers and custodians are employees, not contract labor.
The IRS is offering an amnesty for
correcting this misclassification, lowering
the penalty to 1 percent of one year’s wages
if the employer applies and is approved
for the amnesty program. A church needs
to file Form 8952 to take advantage of this
Once a payroll audit starts, the employer can’t use to this amnesty program. As
the public puts more pressure on the U.S.
government to operate at a surplus, the
government places more pressure on the
IRS to collect taxes. And misclassification
of workers is one way to do that.
In 2011, the Department of Labor and
the IRS agreed to increase their sharing of
information about employee misclassification. This issue is very high on their priority
I am not an attorney, and I am not
providing legal advice on this matter. I am
simply trying to bring it to your attention.
We are offering clergy and church
workshops in February where this and
many other topics relevant to your church
will be covered. Frank Sommerville, a
local attorney and CPA, will present this
workshop. He, along with his wife, Elaine,
specialize in church law and clergy tax
law. Sommerville has presented seminars on nonprofit taxation since 1981. He
regularly assists churches in preventing
With his significant contributions to the
church administration profession, he was
inducted into the National Association for
Church Business Administration Hall of
Fame in 2003. In 2005, 2006 and 2007, The
Church Report, a magazine serving larger
churches, named Sommerville as one of the
50 most influential Christians in America.
In 2011, the Evangelical Council for Financial Accountability named him to its panel
of legal experts to assist Senator Grassley
and ECFA’s Commission for Accountability
and Policy for Religious Organizations.
He is an excellent presenter and much-sought
after speaker. To register for this conference,
I look forward to seeing you at one of
these informative workshops in February.