16 Aug Six Common Penalties Churches Face for Failure to Comply with Payroll Reporting Requirements
Churches that fail to comply with the federal payroll tax reporting requirements face a range of potential penalties. The six most common penalties are summarized below.
- Churches that are required to withhold taxes from the wages of an employee are responsible for the payment of those taxes whether or not they are collected from employee wages. For example, if First Church is required to withhold federal income taxes from the wages of its office secretary, but fails to do so, then the church is liable for the full amount of those taxes. The same rule may apply if the church withholds an inadequate amount.
- A church can be penalized for failing to withhold payroll taxes from a self-employed worker the IRS later reclassifies as an employee. The penalty can be as much as 3% of the worker’s wages, plus 40% of the employee’s share of FICA taxes. On a worker who receives annual compensation of $15,000, these penalties would be nearly $1,000.
- A church that fails to file a correct W-2 or 1099 form with the IRS can be penalized up to $50 per return. This amount can be reduced to $30, or in some cases $15, per return if the church files a correct return within a specified period of time.
- A church that fails to furnish a correct W-2 or 1099 to its workers can be fined $50 per failure.
- A church that fails to make timely deposits of withheld taxes can be fined from 2% to 15% of the amount of the underpayment, depending on the length of time it takes to correct the failure.
- Under section 6672 of the Internal Revenue Code, a willful failure to withhold payroll taxes, or to deposit withheld taxes, can result in a civil penalty of 100% of the amount of the taxes that were not withheld. And, this penalty can be assessed against either the employer itself, or its officers.
This article originally appeared in Church Treasurer Alert, January 1994.
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