To file a 1099-Misc or NOT to file a 1099-Misc?


T

Terry Thomas

This is a 3-part question and I'll try to make it as uncomplicated as
possible.

I'm the treasurer of a small church.

1. We have an agreement with a young woman (not a member of our
congregation) who baby sits 3 to 5 small children during the church
service on Sunday. In the course of a year, we pay her more than $600.
We give her a 1099-Misc at the end of the year. Correct?

2. We also have an agreement with another woman who cleans our
church. She is in business for herself with multiple clients, but
it's one of these "under the radar" businesses. She has no business
license and no employees. We also pay her more than $600 in the course
of the year. Do we give her a 1099-Misc?

3. Finally, we have an agreement with a man who mows the yard, trims
the hedge and does other miscellaneous yard work once a week. He has a
registered "dba," a busness license, insurance and employees. We also
pay him more than $600 per year. Are we required to give him a 1099-
Misc?

During an audit by our "mother church" we were told that we should
have given 1099's to both of the women mentioned above, but nothing
was said about the lawn service. I will concede that we probably
should have given 1099's to the women, but why is the man exempt? He's
not a corporation. Or should we have given him a 1099 as well?

That's the gist of it as concisely as I can make it. I'll appreciate
any info I can get.

Thank you.

Terry
 
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A

Arthur Kamlet

This is a 3-part question and I'll try to make it as uncomplicated as
possible.

I'm the treasurer of a small church.

1. We have an agreement with a young woman (not a member of our
congregation) who baby sits 3 to 5 small children during the church
service on Sunday. In the course of a year, we pay her more than $600.
We give her a 1099-Misc at the end of the year. Correct?

2. We also have an agreement with another woman who cleans our
church. She is in business for herself with multiple clients, but
it's one of these "under the radar" businesses. She has no business
license and no employees. We also pay her more than $600 in the course
of the year. Do we give her a 1099-Misc?

3. Finally, we have an agreement with a man who mows the yard, trims
the hedge and does other miscellaneous yard work once a week. He has a
registered "dba," a busness license, insurance and employees. We also
pay him more than $600 per year. Are we required to give him a 1099-
Misc?

During an audit by our "mother church" we were told that we should
have given 1099's to both of the women mentioned above, but nothing
was said about the lawn service. I will concede that we probably
should have given 1099's to the women, but why is the man exempt? He's
not a corporation. Or should we have given him a 1099 as well?


First, the church should get into the practice of asking
any contractor who you might pay (for goods or services) more than $600
during the year to fill out and give you back an IRS Form W-9,
giving you their tax ID number and name and address. Anyone who might
be an employee should fill out a Form W-4.

See IRS Publication 15a and the Form SS-8 instructions for information
on how to distinguish an Employee from a Self Employed Contractor.


It used to be that what you paid to a corporation, other than a
health care or legal services corporation, did not have to be
reported on on a 1099Misc but that is changing, and giving the IRS
and tax professionals and businesses including churches, headaches
up the wazoo. I will not provide a defination of wazoo here:^)

If the first person is actually an employee, you need to go the
employee route and that's a bit complicated for both of you.

The second person does sound more like a contactor.

The third person should have also filled out and given you a Form
W-9 and if a corporation, you're off the hook for last year.


But having a dba does not get anyone off the hook from receiving
a 1099Misc nor does being organized as an LLC help in any way.
An LLC is not a corporation, even if that person chooses to be
taxed as a corporation. So unless you are in possession of his
W-9 stating he is a corporation, you issue a 1099Misc.


You are past the filing deadline for filing 1099s but if you have
to file, I'd file late rather than never.

Unless the third person is an employee, and if so, see above.
 
B

Bob Sandler

This is a 3-part question and I'll try to make it as uncomplicated as
possible.

I'm the treasurer of a small church.

1. We have an agreement with a young woman (not a member of our
congregation) who baby sits 3 to 5 small children during the church
service on Sunday. In the course of a year, we pay her more than $600.
We give her a 1099-Misc at the end of the year. Correct?

2. We also have an agreement with another woman who cleans our
church. She is in business for herself with multiple clients, but
it's one of these "under the radar" businesses. She has no business
license and no employees. We also pay her more than $600 in the course
of the year. Do we give her a 1099-Misc?

3. Finally, we have an agreement with a man who mows the yard, trims
the hedge and does other miscellaneous yard work once a week. He has a
registered "dba," a busness license, insurance and employees. We also
pay him more than $600 per year. Are we required to give him a 1099-
Misc?

During an audit by our "mother church" we were told that we should
have given 1099's to both of the women mentioned above, but nothing
was said about the lawn service. I will concede that we probably
should have given 1099's to the women, but why is the man exempt? He's
not a corporation. Or should we have given him a 1099 as well?

That's the gist of it as concisely as I can make it. I'll appreciate
any info I can get.

Thank you.

Terry
#1 sounds to me like an employee. That means that giving her
a 1099-MISC is not correct. You should be withholding taxes
and giving her a W-2.

#2 and #3 both sound like contractors, so you should give
both of them a 1099-MISC.

See the following links on the IRS web site. The page at the
second link below has links to the publication and form that
Art Kamlet referred you to.

http://www.irs.gov/charities/article/0,,id=128602,00.html

http://www.irs.gov/businesses/small/article/0,,id=99921,00.html

Note that you can use Form SS-8 to ask the IRS to determine
whether someone is an employee or a contractor, but you
might prefer not to attract the IRS's attention.

It sounds like the auditors from the "mother church" are not
particularly expert in this area.

The new requirement to give a 1099-MISC to a corporation
does not take effect until 2012. But that does not seem to
be an issue for you anyway, because none of the businesses
that you are making payments to are corporations.

Bob Sandler
 
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G

Gene E. Utterback, EA, RFC, ABA

Arthur Kamlet said:
First, the church should get into the practice of asking
any contractor who you might pay (for goods or services) more than $600
during the year to fill out and give you back an IRS Form W-9,
giving you their tax ID number and name and address. Anyone who might
be an employee should fill out a Form W-4.

See IRS Publication 15a and the Form SS-8 instructions for information
on how to distinguish an Employee from a Self Employed Contractor.


It used to be that what you paid to a corporation, other than a
health care or legal services corporation, did not have to be
reported on on a 1099Misc but that is changing, and giving the IRS
and tax professionals and businesses including churches, headaches
up the wazoo. I will not provide a defination of wazoo here:^)

If the first person is actually an employee, you need to go the
employee route and that's a bit complicated for both of you.

The second person does sound more like a contactor.

The third person should have also filled out and given you a Form
W-9 and if a corporation, you're off the hook for last year.


But having a dba does not get anyone off the hook from receiving
a 1099Misc nor does being organized as an LLC help in any way.
An LLC is not a corporation, even if that person chooses to be
taxed as a corporation. So unless you are in possession of his
W-9 stating he is a corporation, you issue a 1099Misc.


You are past the filing deadline for filing 1099s but if you have
to file, I'd file late rather than never.

Unless the third person is an employee, and if so, see above.
I'd also add -

1 - The sitter MIGHT be considered an employee as she does what she does on
YOUR site. I'm not sure on this, but you should check into it - I'll go
over why shortly.

2 - regarding filing the 1099s late. There is a safe harbor provision in
the law (NOT the IRC) that allows for mitigation of penalties for
misclassifying a worker BUT ONLY if you follow the rules you THOUGHT
applied. This applies to all the workers, including the sitter.

It works like this - say the authorities come to you and say they believe
that the sitter should be treated as an employee. You're responsible for
the taxes you should have withheld plus all the associated costs like
benefits, vacation, sick leave, etc. You say NOPE, she was a contractor not
an employee. The IRS position is that if you really thought she was a
contractor then you would have issued a 1099 to her. The issuance of the
1099, done in good faith and not as a willful attempt to evade the law,
could be sufficient to get you out of the penalties associated with doing it
wrong, IF INDEED they determine that she really was an employee. BUT this
only helps you IF you actually issued the 1099s.

This is one of the reasons I (and many other tax pros) encourage (push?) our
clients to issue 109ss to EVERYONE even when they aren't required to do so
because of the payment limits (generally less than $600). It establishes a
pattern and history and shows good faith.

In your case, I'd meet with a local pro versed in employment issues and go
over the sitter situation. The IRS will make the determination for you if
you ask them to - simply fill out Form SS-8 and send it off and they will
TELL you whether someone is an employee or contractor. NOTE I DO NOT
recommend submitting form SS-8 as it can open a whole can of worms - instead
meet with a local tax pro and go over YOUR STATE's rules. Maryland, for
example, uses a THREE PART test while the IRS uses 20 issues. Many states
have stricter guidelines than the Feds so it is possible for the IRS to tell
you the worker is a contractor just to have the state pull the rug out from
under you.

Good luck,
Gene E. Utterback, EA, RFC, ABA
 

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