My church, my taxes and me
October 11, 2013 8:03 PM   Subscribe

I think my employer is doing something shady. I think it affects me. I am really upset and I don't know what to do. It's a tax question with an emotional backstory.

2 years ago, I was in a jam. I was having trouble finding a job in my field, and I was working a shitty retail job. I was having migraines and teetering on the edge of depression. All of a sudden, my church offered me a job. I was told that due to a gift by a parishioner, they were able to create a new position and wanted me to fill it. It was a position was qualified for and excited to do. I felt incredibly grateful and blessed.

When I began work, I was prepared to fill out the normal paperwork, but I was told that they wanted to hire me as a "consultant." I never filled out a W9. I should have asked more questions, but I figured Joe (the board member who was in charge of my hiring) knew what he was talking about. He is a very successful entrepreneur and gives a lot of financial support to the parish. When tax time came around, I asked him if the church was going to give me any kind of tax form. He said no, because I was a consultant. I basically asked the treasurer for a printout of all of my paychecks and used that for my taxes.

I don't know why, but the other day I started to wonder what made me a consultant, when as far as I could tell, I just worked there. So I ended up reading about the difference between employees and contractors. I am definitely an employee. I'm in Massachusetts, which has really strict contracting guidelines and I don't think the church could even begin to make a case that I'm a contractor. I have an office, a church email account, a place in the staff directory and my title is "director of ____". My employment period is indefinite, I am only paid for a certain number of hours per week and I submit a time sheet each week. I'm like a textbook employee.

The more I think about this, the more upset I get. I don't think I was misclassified as a mistake. If they genuinely thought I was a contractor, they would have had me fill out a W9 and given me 1099 forms in 2012 and 2011. They might also have, you know, drawn up a contract with me. So I think someone (a few people?) was fudging things and trying to avoid taxes. My reading indicates that some misclassified employees end up being owed money. (I work part time, though, so I don't know if I would) At the very least, the government is owed money. And I have no idea what liabilities I face because of this. My taxes have obviously not been correct.

I'm mad. I'm hurt. I feel like I was taken advantage of and I feel gullible and dumb. But I also feel like these people rescued me when I needed it and I shouldn't look a gift horse in the mouth. Which then makes me feel gross. I definitely feel like I need to address it. Obviously, if this were just any other employer, this would be easier. I could talk to HR. But I have a feeling that I am going to run into serious denial and obstruction. Like a lot of churches, there is a lot of dysfunction in my parish. I can imagine Joe paternalistically saying "Oh, Biblio, I think you misunderstood this complicated business thing. Everything is hunky dory." I can picture my Rector sticking her fingers in her ears and going "la la la". Other people just might not want to upset the apple cart. My spouse, who is also involved in the parish, doesn't think I should get anyone outside of the church involved, at least not yet. So how do I broach this? Who do I go to?

I want to keep this job. I want to worship at this church. But I want things to be done the right way. I really just don't know what to do.
posted by Biblio to Work & Money (20 answers total) 2 users marked this as a favorite
I've worked TONS of freelance and full-time, indefinite contract jobs where I didn't ever get a 1099. I've been a contributing editor at a major publication for ten years and never gotten one - although I did fill out a W9. Sounds like there are some paperwork issues to be addressed for sure.

You know your church better than I do, but I have worked some places where they weren't doing anything unethical, they were just TERRIBLE at this stuff. You'd be surprised how many things are done out of stupidity or laziness rather than malice, so I wouldn't jump to the worst conclusion yet. Your first thing to do, I think, is to talk to your CPA and ask his or her advice on how to proceed.
posted by Countess Sandwich at 8:17 PM on October 11, 2013 [8 favorites]

My taxes have obviously not been correct.

I'm not so sure about this. Did you declare every cent of income you earned? Did you declare it as consultant income (ie, you paid your full share of Social Security/Medicare taxes)? If so, then your taxes are correct - the IRS doesn't really care where your money comes from just that you paid taxes on it. And you are. So, your problem isn't with yourself.

I feel like I was taken advantage of and I feel gullible and dumb.

Why? You took a job for a certain amount of money. Apparently you were paid that amount of money. You even paid taxes on it. It sounds like you're being really inquisitive about your employer's tax situation for no good reason.

I want to keep this job. I want to worship at this church. But I want things to be done the right way. I really just don't know what to do.

You can report your employer to the IRS as a possible tax cheat. But, if you do that, one of three things will happen:
  1. The IRS will investigate your church, determine they have broken the law, fine them, and you will not have a job or a church.
  2. The IRS will investigate the church and determine they have not broken the law. You will be found out (one way or another) as the person that reported the church to the IRS, and you will no longer have a job.
  3. The IRS will do nothing. You will still have a job, and you won't feel any better.
If you feel strongly enough that the church is acting illegally, what you need to do is find another job and then report them to the IRS. Nothing good will come out of reporting your employer for illegal employment practices while simultaneously expecting them to employ you, respect you, and see you exactly the same as before.
posted by saeculorum at 8:27 PM on October 11, 2013 [4 favorites]

Seconding that you (quietly, if need be) speak with an accountant about this. It seems as though your salary could have been subject to federal withholding, but only an accountant can advise you one way or another and, more importantly, suggest next steps.
posted by jquinby at 8:28 PM on October 11, 2013

It is possible that the organization has terrible HR. It is possible they were intentionally avoiding some sort of state obligation. It is also possible that this was the only way that position was going to happen, and by doing this they had more money to give you.

What I'm saying is, there are several scenarios where they were not out to cheat you, and you might want to approach this issue with that in mind, rather than going straight for the six shooter.

Ask your CPA not "did they do something wrong" but "do I need to do anything to be good with the IRS?"
posted by zippy at 8:53 PM on October 11, 2013

I don't really understand why you're having a strong emotional reaction to this. That said:

Lots of employers make mistakes on this issue, frequently out of confusion, not malice. It is very common for employees to be misclassifed as contractors, and the line between employee and contractor is blurrier than you may think. It's particularly common for employers to get confused when someone is part-time, which it sounds like you may be. I would not be surprised at all if your church had innocently misclassified you.

Often employers bias towards imagining someone is a contractor if the job is perceived as temporary. You said this job resulted from a donation by a parishioner. It may be that although you have no contract and no specified end date, the church is understanding the role to not be permanent in nature. (By which I mean, the money may run out at some point.) If the church does want you classed as a contractor, it may be because they expect the role to end, and don't want to lay off a permanent position because of the real or perceived hassle of doing that.

I would talk with an accountant. But I would also assume good faith here. You like the work and you like your church. It's worth looking into this if it's bothering you, but I would try to keep the emotional component out of it. It may well be an innocent mistake.
posted by Susan PG at 9:05 PM on October 11, 2013 [3 favorites]

Oh and just adding: it's doubtful you would end up being owed money. Contractors are sometimes compensated more on an hourly basis than employees, to offset the costs of benefits they might otherwise receive, or to compensate them for not having the security of a permanent position. But that usually happens when their role or field is competitive and they have good bargaining power -- like, for technology jobs. That doesn't sound like the situation you're in.
posted by Susan PG at 9:11 PM on October 11, 2013

If you've been reporting all your income to the IRS and paying income and self-employment tax on it then the only payroll taxes your church is cheating on are a few hundred dollars per year in unemployment taxes. And if they're not paying that, then they're probably not paying for workers compensation insurance for you either.

So the main way you could get screwed here is a future inability to collect unemployment if you lose your job or workers comp if you get injured on the job.

I do think those potential future hardships are worrisome enough to bring this up to HR, but I would approach it from a "I'm not sure if the current nature of my job still fits the 'consultant' classification I was hired under" position and not a "you guys are trying to screw me" position because in my experience, small employers tend to inadvertently fuck these things up more often than they get them 100% correct. I bet you're probably missing some mandatory workplace posters, too. :)
posted by Jacqueline at 9:38 PM on October 11, 2013 [1 favorite]

Work with HR to change your routine so that under Mass law you are clearly a subcontractor and not an employee; e.g., work from home sometimes, come in when it is convenient to you and not on the same schedule every day, ideally acquire an additional client. Do you have a written contract stating that you are a subcontractor? I'm not a lawyer so you'll have to work out the details. Also, are the rules for non-profits/religious orgs the same as for commercial?
posted by Kevin S at 9:55 PM on October 11, 2013

Are you paying self-employment taxes? If so, then I understand why you feel like you are being taken advantage of and are owed money -- if the church is treating you like a contractor and making you pay SE tax, instead of paying the employer's share of your social security, etc., then they are basically shuffling that (not insubstantial) burden onto you. If you've been paying your taxes then it's not the IRS getting screwed, it's you.

(Disclaimer, I am not a lawyer in your jurisdiction and I don't practice tax law, but I am currently self-employed and was once screwed over in a very similar situation by an entity that absolutely did know better, but boy did they save a lot of money by making their "consultants" shoulder the FICA burden for them, when we were employees in every sense of the word except in their paperwork.)

I would talk to a CPA.
posted by xeney at 10:10 PM on October 11, 2013 [1 favorite]

Not going to even try and answer the tax side of this question, as I'm hopefully unfamiliar with your system. But! I think I can add some thoughts to explain "I don't really understand why you are having a strong emotional reaction to this" (Susan PG)

I so totally get why you are feeling hurt/betrayed/embarrassed here. I can't imagine how I would feel if I knew/thought my church was doing something shady financially.

My flavour of church sounds like it's a bit different to yours (Church of Christ or Baptist) but are there a group of elders/respected longstanding member you could talk to discretely? People who have your best interest and the interest of the church at heart? Who runs the joint, basically, and can you talk to them? What about other board members beside Joe?

I think this falls into making sure you are "giving to Caesar what is Caesar's" and definitely "see if you can resolve your issue with your brother first"- talk to the board, talk to the leadership, see what's going on. If you aren't getting answers from the finance guy, then ask someone else in leadership.

Yeah, I totally get the feeling of wanting the church to be doing the right thing- if it is doing the wrong thing then this definitely impacts on the "being a witness in our community" thing. I also get that you are feeling hurt because these are good people who have cared for you, but there seems to be a flaw here.

Phrase this as wanting to make sure the church is doing the right thing, not as if there is some criminal to oust from your midst, phrase it as wanting to set your own worries to rest about making sure you're doing your taxes properly.

If there is deliberate stonewalling and paternalism, then you've got to weigh up how you proceed with involving other outside people/agencies.
posted by titanium_geek at 10:11 PM on October 11, 2013 [1 favorite]

Are you paying self-employment taxes? If so, then I understand why you feel like you are being taken advantage of and are owed money -- if the church is treating you like a contractor and making you pay SE tax, instead of paying the employer's share of your social security, etc., then they are basically shuffling that (not insubstantial) burden onto you. If you've been paying your taxes then it's not the IRS getting screwed, it's you.

The flip side of this is that (according to your description, and typical of situations like this), the Church had $X total dollars to pay for this position.

So what they would NOT have done is hire you as an employee and paid you the same $X they did as a contractor, and then on top of that paid the employer share of various taxes, leaving the total cost of your position at $X plus 10% or so.

Nope, that's not how it works.

If they had chosen to hire you as an employee, they would have started with the $X, subtracted out all the employment taxes, etc, and paid you the remainder. Which would have been quite a lot less than $X.

Either way, the amount you actually end up with is pretty much the same. It's only a matter of whether the very same taxes are pre-paid or post-paid. That's why folks here are saying to relax and take a deep breath.

Here is how it works in detail:

YOUR SITUATION (Contractor): The church told you they would hire you as a contractor for $X and the result was that you had to pay both employer and employee share of social security and medicare taxes out of the $X. And later on you pay your regular federal and local income taxes out of $X also.

What you are left with: $X minus employer share of SS & medicare minus employee share of SS & medicare minus income taxes.

EMPLOYEE SITUATION: If they had hired you as an employee, what they would have done is paid the employer share of social security and medicare first. Like all employers, they don't have magic money appearing out of nowhere, so of course they pay those costs from $X and those costs reduce the amount of $X left over to pay you with. So instead of offering you $X as a contractor they would have offered you ($X minus employer share of SS & medicare minus whatever other expenses they had) as an employee.*

Then at every paycheck they would deduct the employee share of SS & medicare from your check. Then they would deduct your income taxes from the check. Then you get the rest.

If you've been taking notes, you've already figured out what you are left with: $X minus employer share of SS & medicare minus employee share of SS & medicare minus income taxes.

Does that look familiar? It should, because it is the same amount you've gotten as a contractor.

The big difference is in who handles and pays the taxes. As a contractor, you do it. As an employee, the employer takes care of a lot of the payments and withholdings. But the end result is very, very similar if not identical. That's why there is not much to get overexcited about here.

FWIW all of our former contractors were really, really mad when we switched them all to employees. Contracting is simpler if you are used to dealing with it, and in addition you can work the system a little by deducting certain business expenses, since as a contractor you are technically in business for yourself.

* I've left out a couple of details here that Jacqueline mentioned above: Unemployment tax & workman's comp insurance. As a 501c3 church group, they are probably not eligible for federal unemployment. So that would be $0. State unemployment is probably around 1.5%. So if you're making $20K/year, that would be $300/year.

So, they would have deducted another $300 from your $X, you would have gotten $300 less, but you would also have unemployment coverage. I don't know which is more valuable to you, the $300 per year or the eligibility for unemployment when the time comes, but keep in mind that as a part-time employee your unemployment benefit isn't going to be that grand.

Workman's comp is similarly going to be a few hundred dollars a year. So if you were an employee they would subtract that amount from $X and pay you that much less, but you would have that insurance benefit in case you're injured on the job or whatever.

Personally I like having unemployment and workman's comp coverage, but both the cost and the benefit are pretty low, and approximately balance out (ie, you have less insurance coverage but more cash--what's more, you could take that cash and buy some insurance coverage if you so wished) so it's not really a big enough deal to get rageful about.

And that's pretty much every single difference there is between contract work and employment.

posted by flug at 1:06 AM on October 12, 2013 [2 favorites]

While I'm not a an attorney, accountant or anything else, I work in field where the lines between employee and contractor are often very blurry. Because of this, I know that the IRS has very specific rules, and by their definition you are an employee (timecard, company title, fixed work schedule). Of late the IRS seems to be cracking down on this. As a freelance theater technician, I would regularly work a few days for one company and then a few for another, almost always below the reporting threshold. In the last few years almost all of the companies I worked for switched me from 1099 to W-2, because the line was blurry and the risk (to them) of running afoul of the IRS was too high. If someone reports them (you may well not be the only one in this situation) or they are randomly selected for an audit, the penalties and interest could be crushing, and they may be risking tax-exempt status.

If you love your church and don't want them penalized, you should bring this up to someone with the authority to act within the church. You can present it from the point of view of "I was doing some research, and discovered that there may be an issue that needs to be looked into." Don't assume malice, but an error that needs to be corrected to protect the church. Stewardship of the church's finances is a significant responsibility, but isn't always given to a person with the skillset to understand all of the intricacies of tax law.

If you want a deeper religious perspective, perhaps God put you in this position not only ho help you out of your tough time, but to prevent an error in the church's finances from doing permanent harm by flagging it from within and allowing corrective action to be taken.
posted by Morydd at 5:11 AM on October 12, 2013 [3 favorites]

I would also feel very emotional if my church was not handling taxes properly. It seems scammy, even if done ignorantly. So I would 100% want clarification on this to feel ok worshipping there.

Is your church part of a larger denomination? I think if you are not feeling the whole attorney/accountant route, you can appeal to a regional board for mediation. Lets face it, sometimes church politics can be strange and make things difficult. If you hit the wall where Joe tells you not to worry and your rector goes "lalala", then take it to the organizational structure of your church. I went to a church once where there was a dispute between a staff member and the senior pastor over allocation of donations. The Staff Parish Relations Committee couldn't solve it, so a group from the district office came in to mediate.

Of course, the whole thing was acrimonious as hell, but YMMV.
posted by chainsofreedom at 5:53 AM on October 12, 2013

I noticed that your full name is in your profile. I didn't try to find out what church it was through your name and state, but I'm betting it wouldn't be hard - you might consider making this question anonymous.
posted by Pax at 6:45 AM on October 12, 2013

Flug nailed it, but one side note - The IRS frowns heavily on employers using private individuals as long-term "contractors" with a single client (the employer), and doesn't allow that without some other circumstances tempering it (for example, if you had a history of working as a contractor and currently just have a dry spell with only a single client, the church might get away with it).

That said, no matter what, you should have gotten a 1099, and honestly, I can't figure out how the church has even benefited by not issuing one to you. Unless what you do for them actually generates income, they should want to claim you as an expense, since it makes their private-vs-institutional donation ratio look better to the IRS.

Depending on your overall financial situation, I have to at least partially suspect they avoided paying you above-the-table as a favor, giving you the option of not declaring it as income.

But in any case, keep in mind that (as long as you've paid your taxes) this doesn't endanger you if it ever comes to light, only the church itself.
posted by pla at 6:57 AM on October 12, 2013

Response by poster: I appreciate the perspective of the freelancers here. Thanks for navigating through my emotional swamp.

Flug, that's a good explanation. I make 15.00 an hour. Are you saying ithat if I were an employee they would have offered me less?

Pla, it never occurred to me that they might be trying to help me out! I didn't get any "nudge nudge" vibes from them. I don't know what they gain, unless it has something to do with the money coming in as a donation and then going out again as wages. That could be an issue? Plus I imagine the donator is getting a tax benefit from paying my wages. OH I remembered something! Joe once told me that he was giving all of his donations as restricted gifts. Since I think his donations are funding my position, I have no idea if this ties in at all. Maybe no one is being nefarious, but I think someone is trying to make things more convenient.

I feel dumb because I never asked any questions, and I never investigated what it meant to be a contractor. Because I am NOT a freelancer (my normal career is librarian and my current position is not normally thought of as a freelance job.) I had no idea that I was expected to pay all these taxes on my income. I had no clue there were self employment taxes. When I didn't fill out any forms upon employment and didn't get any tax forms at all at the end of the year, I should have investigated further. I didn't pay those taxes and I don't think I am legally obligated to pay those taxes, because I think the IRS would view me as an employee. But I am still upset that a) I wasn't given the right information and b) I didn't think beyond "boy am I lucky to have this job!"

Titanium_geek has it right. I need to reset my approach. As tempting as it is to be the avenging angel with the flaming sword of tax justice, what the hell does that get? I am going to assume good faith, and approach the treasurer first. I'll simply ask for help figuring out my tax situation. If she can't help I will ask a select handful of board members who are sensible people. If they can't help, I will ask the guy who does the churches' taxes. Hopefully what I find out is that we all were hopeless idiots who had no idea what we were talking about and now a CPA has to go over the last 2 year's tax returns to square everything up.

If I feel like no one can give me a straight answer, I will tell that I'd like to talk to someone from the Diocese, instead of simply running to the Diocese myself. That will give them a chance to decide to give me a straight answer, or accept the intervention without feeling blindsided.

In the meantime, I will talk to a CPA myself.

Churches are weird places. You spend all your time talking about bringing about kingdom of God on Earth (figuratively in our case) but then you get to see power struggles and passive aggressive bullshit and outright immorality. What it comes down to is that over the last 2 years I have repeatedly put my trust in these people, seen them act shittily and then gone and taken communion with them. It's a roller coaster. This tax thing was the third thing this month that was disappointing or hurtful and that colored my reaction.

I've just accepted a part time job in my field. My plan was to keep both jobs, at least for a while. I guess it's clear to everyone but me that the church job is eating me up. One nice thing about the new job is that they told me to bring all my paperwork so on the first day I can go to town hall and fill out a W2.

(Pax, you could totally find my church through my profile before. I've amended it. I didn't want to be anonymous so I could comment. Thanks for the heads up)
posted by Biblio at 7:45 AM on October 12, 2013

The tax exempt nature of the church's funding is irrelevant (i say as former nonprofit staff).

You need some professional guidance. You are understandably upset, but this should not be about anything besides "how can we expediently set things right?" You're fed up with the church, personally impacted and therefore alternately feeling fearful / betrayed / angry, and new to tax and employment law. Therefore, you will not be the best person to find a workablechurch solution. And due to your lack of knowledge and (again, understandable) mistrust of the church, you might not be open to a good solution presented took you by them.

Find someone detached and expert to guide you before approaching their people. There are probably pro bono attorneys who handle employment law for people in your income bracket. A more seasoned CPA could probably handle this as well. Consider having one of them even handle these negotiations for you. Good luck.
posted by salvia at 11:36 AM on October 12, 2013

It's likely that they knew you should have records kept. They should have known you don't meet the criteria to be a contractor. They probably wanted to save money. Withholding is a pain, FICA is expensive, etc.

Now, what? If you like the job, feel the pay is fair, and want to stay, talk to the Finance Committee about becoming an employee. One big problem with pay 'under the table' is that you lose the Social Security benefit. Who knows the value of it, but when I worked for someone who neglected to file withholding, despite assuring me he would do it, I lost a year of Soc. Sec. wages.

I'd chill out about past issues, and try to set it right from here in. Good luck.
posted by theora55 at 12:11 PM on October 12, 2013

Before paying for professional advice, you could see if the free advice from the U.S. Department of Labor's Hour and Wage Division (contact info here) is helpful and/or sufficient. And you can start by reading their general information on "Employee Misclassification as Independent Contractors."
posted by Mr.Know-it-some at 5:51 PM on October 13, 2013

Flug, that's a good explanation. I make 15.00 an hour. Are you saying that if I were an employee they would have offered me less?

In short, yes.

In long, they would either have to offer you less money or find more money from somewhere else to cover those costs. That's how it works when you are working with small and relatively fixed budgets.

I'm guessing what happened is, someone came along and said something like, "Hey, we need a Director of Churchology (or whatever your position is)! I can donate $15,000 per year (or whatever exact amount they are paying you) and we can hire someone to work 1000 hours per year at $15/hr, because $15 X 1000 = $15,000!"

So that seemed simple enough, and they did it.

But that leaves the $15,000 as the top and bottom of the Church's budget for this position. The beginning and the end.

They could (and yes, probably should) have paid all those employment taxes etc but if $15K is the budget for that position then yes, those fees are going to come out of the $15K and what's left after paying those employment taxes is what is left to pay you. So they pay all the taxes & insurance but now you are making $13.50 an hour (or so) instead.

Even though IMHO they are not doing it 'right' you can take some cold comfort in the fact that you don't have the benefits but you do have (roughly) the equivalent in cash.

And if they were doing it right they would have added in not only those amounts, but some amounts for paying someone to do the payroll, taxes, & accounting related to your position and your portion any other kind of overhead related to your position that the church has. I mean doing your payroll & tax forms right might only cost them another $500 or $1000 per year but--obviously!--they are not doing it. Is that because they don't have any available funds to pay someone to do that job right? Probably.

And doing it right would be money well spent both from your side and theirs, but the church would have to come up with that amount of extra funds from somewhere.

Most people don't like to think about this--including 'business people'--but to be realistic about bringing on new employees you have to be prepared to pay ALL associated costs. A realistic starting point is employee take-home pay is 50% of their total cost of that employee to the organization. An el-cheapo nonprofit might be able to trim that down a bit--so maybe your hourly rate is as much as 60-70% of your total cost to the organization. Maybe volunteers do some of the accounting, payroll, and other administrative tasks, maybe the church already has an office with heating, lighting, phone, internet, and a computer that's just sitting empty. Maybe you never need a restroom and clean your office for free as part of your job duties. Etc. But still--we've seen that just the very plainest required-by-federal-law employment taxes and insurance cost about 15% and those are just the start of the employer's costs related to an employee.

In short, employees cost a lot more than their listed hourly rate, and both employees and employers would do well to remember that.

But from your point of view, would you be happier, or less happy, if they had paid you, say, $10/hr or $11/hr and then they had used the remainder to pay all the required employment taxes as well as make sure the taxes, payroll, bookkeeping, tax forms, etc etc etc had been done exactly right?

You wouldn't be in this awkward/weird position right now but you also would have quite a lot less money in your pocket.

And one thing you should keep in mind in negotiating about this issue, is that in making the requests that you are, you're both (1) asking for a decent size raise (from $15/hr with no benefits whatsoever to $15/hr with minimum federally required benefits--that's at minimum the equivalent of a 15% raise) and (2) asking them to up their game as far as payroll, accounting, taxes, etc. Which will also cost money.

You probably deserve a decent raise and they probably ought to up their game on those basic things, but keep in mind it is still a fair little lift for them, on both ends. Each of those going to take more work and/or more money from somewhere. As usual, you'll get further if you can help create solutions to those problems, rather than just making demands.
posted by flug at 2:48 PM on October 16, 2013

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