Church Operated Daycare

[Larmil]

Client's daughter worked for a daycare operated by a church. Church claims they are not required to issue a W-2. Church withheld federal and state income tax but not Soc Sec or medicare.

Is church correct? Does daughter pay her own social security tax? Thanks for any insight.

[Bees Knees]

TTB, page 14-7:

Church Employees Other Than Ministers
Churches and qualified church-controlled organizations that are
opposed for religious reasons to the payment of Social Security
and Medicare taxes can elect to exclude their employees from
FICA coverage. Their employees are required to pay SE tax if
wages exceed $108.28. Report wages on Schedule SE, Form 1040.

Even if church elects not to withhold FICA from employee's pay, they are still required to issue W-2s, especially since they withheld Fed and State tax.

[gkaiseril]

Could be 1099-Misc

The church could be treating the daycare providers as independent contractors and pay them on a 1099-Misc and withhold Federal and state income tax.

As to the church not needing to whithhold Fica amd Medicare taxes, only if church has applied for and been approved by IRS and SSA.

[ChEAr$]

Ouch!

The church could be treating the daycare providers as independent contractors and pay them on a 1099-Misc and withhold Federal and state income tax.

Completely false. common law employes even of churches get W2 forms.

As to the church not needing to whithhold Fica amd Medicare taxes, only if church has applied for and been approved by IRS and SSA.

I believe that choice went out back in mid 1980's. anyone know?

[MAMalody]

Until the end of 1983, a nonprofit organization or church was exempt from withholding and matching social security on their lay employees, unless they chose to cover them by filing Form SS-15. As a part of the Social Security Amendments Act of 1983, social security coverage was extended on a mandatory basis to all lay employess of nonprofit organizations as of 1 January 1984. The Tax Reform Act of 1984 provided for an election by a church or qualified church-controlled organization that is opposed for religous reasons to the payment of social security taxes, not be be subject to such taxes. By filing Form 8274 lay employees of churches that make the election are liable for paying social security on their personal returns on Schedule Se. Electing church employers have the responsiblity of withholding income tax, filing quarterly reports and preparing a W-2 for each employee.