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

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 0. We give her a 1099-Misc at the end of the year. Correct?

  1. 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 0 in the course of the year. Do we give her a 1099-Misc?

  2. 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 0 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

Reply to
Terry Thomas
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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.

Reply to
Arthur Kamlet

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

Reply to
Gene E. Utterback, EA, RFC, AB

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