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I am frequently asked to help ministries determine whether some of their church staff are considered employees or contractors for tax reporting purposes. Some ministries try to improperly classify staff positions such as musicians as contractors for tax savings reasons. The determination of a contractor or employee is vital to a ministry as improperly classifying staff can led to significant tax bills and legal implications if improperly reported.
The Internal Revenue Service provides three characteristics as to the relationship between the organization and staff worker:
- Behavioral Control
- Financial Control
- Type of Relationship
In order to test these controls characteristics; you must determine if the staff person such as a musician has the right to control or direct his/her work and how that work is done, in addition to controlling the result of the work – means and methods of accomplishing the work. Someone who meets these conditions might be considered an employee rather than contractor.
Some other considerations necessary in determining the status of ministry staff such as musicians are;
- Does the musician supply his/her own instruments, supplies or equipment and/or tools to perform the job?
- Can the musician be fired at any time and he/she is able to choose when to come to work without fear of losing his/her job?
- Does the musician control the hours that he/she works?
- Is the employment position temporary or permanent?
As you can see by some of the criteria listed above that musicians do not always fit the classification of contractor and should be classified as an employee. It is essential that your ministry contact a tax professional in order to determine the correct employment classification of your ministry staff.
Article Originally written By David Dennison, CPA, MBA, MS
Dept. of the Treasury – Internal Revenue Service (Rev Sept 4, 2103). Employee vs. Independent Contractor – Seven Tips for Business Owners. Retrieved from http://www.irs.gov/uac/Employee-vs.-Independent-Contractor-%E2%80%93-Seven-Tips-for-Business-Owners
Dept. of the Treasury – Internal Revenue Service (Rev Jan 8, 2014). Topic 762 – Independent Contractor vs. Employee. Retrieved from http://www.irs.gov/taxtopics/tc762.html
Dept. of the Treasury – Internal Revenue Service (Rev March 2012). Publication 1779 – Independent Contractor or Employee. Retrieved from http://www.irs.gov/pub/irs-pdf/p1779.pdf