941 with no withholding

by Steve
(Delmar, MD USA)

A church (at the minister's request) withheld nothing from the minister's renumeration. W2 and W3 were timely filed. The IRS is requesting copies of prior-year's 941s which were not filed. Is the church required to file 941s with zero withholding?

Comments for 941 with no withholding

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Feb 01, 2013

Filing an IRS 941 form
by: Vickey

According to Guidestone Financial Resources: "The IRS national office takes the position
that churches with only one employee (the minister)do not need to file a Form 941.

This opinion is based in part on an income tax regulation specifying that every employer shall file a Form 941 for each calendar quarter
in which it is "required to deduct and withhold" income taxes."

Update: 10-5-15 Guidestone has removed the article I referenced in this post. Please consult a knowledgeable tax professional or call the IRS on this issue. Many churches with only an ordained minister as an employee have been required to file a quarterly 941. See the posts below.

Jan 30, 2015

Quarterly 941
by: Yvonne

How do I correct the error I made by sending in a quarterly 941 for our pastor, but the entire amount on the quarterly 941 is desinated as housing allowance not wages. What form do I need to correct it?

Jan 30, 2015

Maybe......
by: Tom

If you are paying the Pastor and not withholding federal tax, state tax, social security & medicare tax and haven't received IRS inquiries, consider yourself lucky.

I can tell you from our experience that if you receive a form 941, call them first and see if you can explain that the Pastor is the only employee and is self employed. He pays his federal, state and both the employer and employee halves of Social Security when he files after receiving a W-2 or 1099 from the church (get an accountant to do this).

If they continue to send a 941, DON'T IGNORE IT! THEY WILL NOT STOP!! Call them, explain the situation and ask for the business section of the IRS. When you get them, ask for someone that specializes in church accounting. Further ask how to fill out the form when you are withholding nothing and are paying the pastor his full salary.

We have been going round and round with the IRS, received certified letters with notices to levy our bank account. They have levied ours for the first quarter of 2008. They took #1,750 from our account. After many calls we were able to write a letter and have it reinstated.

When you deal with the IRS, the one who answers will give you their name and IRS ID number. Write both down, the day and time you called and what the conversation was. You will need these to reference in your letters.

The IRS treats small businesses and non-profits the same. You may get someone who deals with churches, and you may not.

We hired an accountant that also works with several other churches to submit our quarterly form 941 and end of the year W-2 and W-3 for the Pastor.

ONCE AGAIN, DO NOT IGNORE IRS INQUIRIES. CALLING THEM RATHER THAN WRITING A LETTER CAN USUALLY GET THINGS STRAIGHTEN OUT EARLIER AND SOONER. I WISH I HAD KNOWN THIS SEVERAL YEARS AGO.

GOD BLESS

Jan 31, 2015

Housing Allowance
by: Thomas Booze

The Housing Allowance is not subject to Federal or State tax and doesn't go on the quarterly 941.
Instead, it goes on the Pastor's W-2 at the end of the year in Block 14 (Other). We put in the block 14: Housing Allowance 19,500.

The Housing Allowance is subject to the self employment, i.e. Social Security. Since the Pastor is considered self employed, they pay both the employee share 7.65% plus the employer 7.65% for a total of 15.3%.

Sounds like a great deal for the Pastor that he doesn't have to pay Federal or State income tax on the Housing Allowance, but 15.3% is substantial.

Remember that Pastor has to pay Federal and State taxes on his salary reported on the W-2 (which should equal the total of the 4 quarterly 941's. He also has to pay that 15.3% Social Security on his salary.

This is why a lot of churches give a Pastor a raise in Housing Allowance rather than salary because it saves them Federal and State taxes.
This is perfectly legal ethical and Godly. Don't abuse it though. If the average rent for a 3 bedroom house in your area is 1,500 and you're making the Pastor's Housing allowance 2,500, that could be illegal, unethical and maybe ungodly.
Just saying . . . .

Feb 02, 2015

941
by: Anonymous

Vicky,

Thank you for that. Glad you've been successful
in not having to submit 941's. The IRS agent that I called told me they were required and explained how to fill it out when nothing was being withheld. After 6 years of back and forth, we (IRS and our church) have finally found common ground that we submit 941's quarterly and they send us no more threatening letters.

Would like others out there to tell their IRS stories.

God Bless,
Tom

Mar 04, 2015

Filing a Form 941
by: Vickey

Thank you Tom and everyone that submitted their comments on this very important issue!

I would also like to hear from others on their experience with this issue.

Sounds like the motto "better to be safe than sorry" may apply here.

It wouldn't take much time and effort to file a quarterly 941 and show the withholding as zero and if it would save you from having to explain to the IRS why you did not file quarterly 941s...it would be worth it:)

However, make sure you DO NOT include any housing allowance amounts on the 941 form as Thomas explained in his post.

Nov 01, 2019

941
by: Tom Booze

Yes, file the 941 every quarter. Don't wait like we did and just ignored the 941 letters. After a few warning letters, they took what they calculated we owed them. After countless phone calls to the IRS (they are open until 8 p.m.) we finally filed 3 years of 941's and were able to get the full of the levied amount on our bank account. You've heard that sound bite "Don't mess with the IRS", I can vouch that it's absolutely true.

Click here to add your own comments

Join in and write your own page! It's easy to do. How? Simply click here to return to IRS Form 941.

If you want to DIY your payroll, I highly recommend you look at using Gusto! It is very user friendly and their support is awesome! Plus they know how to set up and maintain payrolls for churches and nonprofit organizations.

Note: I am a "partner" of Gusto, but as I have told you before ... I never recommend anything that we or our clients have not tried and love =)

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