A Dangerous Myth on the W-2 Form
By Raul Rivera
"Raul, it is a burden to our church to have to file W-2 forms each year. We only have the pastor and the secretary on salary. Why can't we just give them 1099 forms? The IRS will still get its taxes and we won't have to do so much paperwork." That was a conversation I had with a pastor whose main concern was not as much about filing the W-2's as it was about filing 941 forms each quarter. He felt that because his church did not have the resources to hire a CPA or use a payroll company, the better answer was to file 1099 forms. That is a conversation I have often with pastors or administrative personnel at churches, such as treasurers and financial secretaries. It is important to know that there are two sections of the code that can apply to situations such as these. They are listed below.
1. Section 6723: This section deals with "failure to comply with other information reporting requirements." The law provides that when a person fails to comply with the reporting of any W-2 or other forms such as the 1099, a penalty shall be imposed. This section of the code usually applies for failure to comply issues such as doing it the wrong way or improperly filing the forms. The penalty can be as high as $100,000.00.
2. Section 7202: This one is serious. It applies to churches or ministries that are required to keep W-2 or 1099 records, and supply any information to the IRS. If the person in that church that is responsible for these records willfully fails to make such return, keep such records, or supply such information, at the time or times required by law or regulations, they shall be guilty of a misdemeanor and be fined up to $25,000 and the church may be fined up to $100,000.00.
Under the law, form W-2 is not optional. A church must issue a W-2 form to the pastor and any other employee of the church. Ignoring it or issuing a 1099-Misc is not the answer.
What is the due date of the W-2?
In 2012, W-2 forms must be filed with the government by February 29th if they are filed in paper form. A church that wishes to file them electronically has until March 31st.
Should the housing allowance be reported on the W-2?
Very few people know that the law does not require the housing allowance to be reported on the W-2. However, I still answer, "Yes" to that question. The housing allowance should always be reported on line 14. My reason for saying yes is for banking and major buying purposes. When a minister applies for a loan to purchase a home or a car, banks want to see if his/her income is sufficient to make the payments. Many banks today will deny a loan if income reported on a W-2 is not sufficient. Often times, the housing allowance reported on line 14 is just enough to get the loan approved.
What if my pastor or the church board refuses to issue W-2 forms?
Compliance is not optional. Taking the chance of getting caught is not worth it, because one day we will have to answer for why we chose to willfully ignore the laws of man that were put in place by the government that the Lord established in America (Ro. 13:1-2). I agree with you when you say that our government has at times overstepped its bounds and that at times has been unjust towards the church and people of faith. The Lord knew that would happen when He instituted it. Consider this! Is there any other government in the entire world you would rather have than the one we have here in America? We should all be grateful for it and with willing hearts discover the joy that comes when we know we are in full compliance.
You can do it
I am 100% confident that after attending one of our StartCHURCH conferences, you will be able to file all the required forms year after year. Let us show you how to create a W-2 and send it to the correct government agency.