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An employee is anyone who performs services for remuneration, and the congregation can control what will be done and how it will be done. According to IRS Publication 15, “Circular E, Employer’s Tax Guide,” and Publication 15-A, “Employee’s Supplemental Tax Guide,” the congregation is responsible for withholding income tax based on the number of withholding allowances claimed on the employee’s Form W-4 and the correct withholding rate. If wages for the calendar year exceed $100, the congregation must also withhold and pay the employer’s share of Social Security and Medicare tax. All lay workers of the congregation are to be treated as employees, unless there are truly unique circumstances. Congregations cannot treat workers as self-employed, independent contractors or neglect to maintain the other payroll requirements of an employer in order to avoid paying Social Security and Medicare tax.

The IRS has issued Revenue Ruling 87–41 that describes the factors used to determine whether an individual is an independent contractor (hence self-employed) or an employee. The ruling lists 20 factors to consider when making such a determination. When applying the factors to ministers, the factors will describe the worker as an independent contractor in some cases and a common-law employee in others. However, the preponderance of factors indicate that a minister in The Lutheran Church—Missouri Synod is a common-law employee, even though for Social Security and Medicare tax and income tax withholding purposes, the worker is treated as self-employed. At the bottom of the page is a summarized list of the characteristics of employees and independent contractors.

 

Characteristics of Employees

·      Required to comply with instructions

·      Continuous relationship with employer

·      Work is done personally by the worker

·      Works full time

·      No liability incurred if worker quits

·      Worker’s expenses are reimbursed

·      Reports of work completed must be submitted by worker

·      Worker is furnished with tools and place to work

·      Pension, health, or other benefits are provided

 

Characteristics of Self-Employed

·      Can employ assistants

·      The order and sequence of work set by worker

·      Payment is by the job

·      Hours of work set by worker

·      The person may work for someone else at the same time

·      The worker’s services are available to the public

·      Tools are provided by the worker

·      The worker can enjoy a financial profit or loss

·      The work can be done on someone else’s business premises

·      There is a substantial financials investment by the worker

·      The worker has a business license

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