Surviving Summer, Part 3: Paying Guest Speakers
By Raul Rivera
As pastors prepare to take their much-deserved family vacations, many churches will utilize the services, gifts, and talents of guest speakers. To show appreciation, churches often pay guest speakers with an honorarium or love offering.
My question to you is, “Are you certain your church is properly handling the love offerings given to guest speakers?”
Unfortunately, there is much confusion amongst churches regarding this topic. For this reason, Part 3 of our “Surviving Summer” series is going to address this topic. By the end of this post you will know how to properly pay your guest speakers.
Most churches do it wrong
A common practice amongst churches is to pay guest speakers with cash from the offering. This is most commonly referred to as an honorarium or love offering. The intent behind this practice is good and pure, however, churches that practice this must be cautious.
Churches that do this are often violating several sections of the IRS code, because there is usually no paper trail to make the cash payment reportable. (See section 6721 and section 6672 for more info.)
These violations can result in penalties being charged against the church and possibly against board members who knew better or should have known better.
Why churches tend to get it wrong
When churches show gratitude to guest speakers with a love offering, they tend to view the love offering as a gift. In most instances, how a church pays its guest speakers is simply the “way it’s always been done”.
But more than anything, there is a misunderstanding amongst church leaders about what is considered taxable income.
Internal Revenue Code section 61 says that all income from whatever sourced derived is subject to taxes unless the tax code makes an exception. However, the law does make some provision under section 102(a) by stating that gifts do not have to be reported to the IRS.
It is no wonder many churches misunderstand how to handle love offerings to ministers. Luckily, some clarification on taxable income is given in the IRS’ Minister Audit Technique Guide.
The Minister Audit Technique Guide instructs that the following must be included as taxable income:
- Compensation a minister receives from the church.
- Bonuses or “special gifts” a minister receives from the church.
- Fees a minister receives that are paid directly from parishioners for performing weddings, funerals, baptisms, or masses.
- Contributions a minister receives for services.
Now we know that love offerings given to guest speakers are taxable income that must be reported. So, what is required of your church in such situations? And, how should your church handle paying guest speakers?
Let us take a look at the answers to these questions next.
How to handle paying guest speakers
Churches want to show gratitude and appreciation to guest speakers, and this is often done in the form of love offerings. Because pastors and church administrators are not always sure of how much to pay a guest speaker, they just rely on taking up a special love offering for the guest speaker after the service.
While there is nothing inherently wrong with this practice, it is not the best accounting practice for churches. It can lead to underreporting and misreporting, which can then lead to costly penalties.
Below are 3 steps your church should implement when paying guest speakers.
1. Determine the amount ahead of time
It may not always be easy to determine the amount ahead of time, but it is a step that can help things run more smoothly. Some speakers may have a set speaking fee and they should let you know that up front. But for those who do not have a set fee, it would be a good idea for your church to set aside a portion of its budget for guest speakers.
Knowing what you are going to pay the guest speaker up front will help eliminate the need for paying him with cash from the offering, since determining the amount ahead of time allows your church to pay the guest speaker with a check. This is a best practice for accounting and bookkeeping purposes.
Although it is not recommended, if your church HAS to pay cash then take the necessary steps below:
- After counting the cash and recording it correctly in the tithes and offerings count sheet, prepare a deposit slip to be used for recording it into your church’s petty cash fund.
- Record the deposit into the petty cash fund as money received, making sure that the purpose for receiving it is written down.
- Record a cash transaction debit for the amount paid to the minister and detail the following: "Cash paid to Minister X for religious services performed; to be recorded as wages for self-employed purposes."
- Make sure that when accounting enters the petty cash transactions, the transaction is recorded correctly so that, if necessary, your church can issue a Form 1099-MISC to the guest speaker.
2. Receive Form W-9 from the guest speaker
In order to meet the requirements of federal law, your church must gather the name, address, and taxpayer identification number of every single guest speaker your church pays. This information should be submitted to you from the guest speaker on Form W-9. This form meets the due diligence requirements of section 6041A.
If your church does not receive a W-9 from the guest speaker, your church will have to withhold 28% of the payment. Your church will then need to submit the withholding to the IRS using Form 945.
If your church does not withhold the tax, your church will have to pay the tax out of its own pocket. Several churches have implemented a policy stating that unless a guest speaker submits a Form W-9 prior to speaking, then he/she will not be compensated.
3. Issue Form 1099-MISC
This form can easily be misunderstood. However, to keep things simple in regards to guest speakers, the IRS requires that your church issue a Form 1099-MISC to every guest speaker who receives compensation of $600.00 or more from your church over the course of a year.
It is important that your church takes the necessary steps to ensure that the necessary filing requirements are met. Under section 6721, the IRS can impose penalties on failures to file, or correctly file, informational returns. Penalties for filing issues can range from $100.00 to $1,500,000.00.
Burdensome regulations...but they do not have to be
The administrative, reporting, and filing requirements involved with paying a guest speaker may seem like burdensome regulations, but they do not have to be. Knowing what is required of you is half the battle. The other half is simply implementing what you have learned.
Perhaps you are wanting to learn more, or maybe your church has an administrator who could benefit from learning more about church compliance. Well, you are in luck because we have two invaluable resources.
- StartCHURCH University: This is an online, self-paced course that is perfect for any pastor or church administrator who wants to sharpen his/her skills and knowledge of church compliance. You can click here for more information.
- The Ultimate Church Structure Conference: This is the perfect one-day conference for pastors, church administrators, and board members to spend a day learning about strategies to protect the vision God has given them for their churches. I encourage pastors and board members to attend this conference together so that they can dream and learn with one accord. You can click here to sign up today.