January is a compliance sprint most churches aren't ready for
The giving slowed down after Christmas. Your finance chair wants year-end reports 'by Friday.' A staff member asks about their W-2. A donor emails: 'Can you resend my contribution statement?' And someone remembers you paid a guest musician twice last year -- was that a contractor?
Church tax season is two seasons running at the same time: staff and payroll compliance on one side, donor substantiation on the other. Most churches don't fail because they don't care. They fail because compliance gets run from memory instead of a system -- and January punishes that every year.
This post is a practical, church-specific tax season guide for U.S. churches: what to send, what to file, what to document, and how to turn it into a repeatable workflow inside your church management software. It's general information -- not tax advice -- so loop in your CPA or bookkeeper for your specific situation.
This guide covers federal requirements. Your state may have additional filing requirements for nonprofits and religious organizations. Check with your state's secretary of state office and a local CPA.
The real church tax season timeline
Church tax season runs from late January through April, but the highest-stakes deadlines hit in the first four weeks. Missing the January 31 window for W-2s and 1099s creates penalties and confusion that ripple through the rest of the season. Here's what 'on time' actually looks like.
Late January / early February
- Furnish W-2s to employees by January 31 (or the next business day if January 31 falls on a weekend or holiday)
- File W-2/W-3 with the SSA -- generally aligned with the January 31 deadline
- File and furnish 1099-NEC for qualifying contractors by January 31
- Verify housing allowance designations are documented for clergy (should have been approved before January 1)
February through March
- Reconcile giving totals and issue contribution statements to all donors
- Clean up reimbursement documentation and collect any missing receipts
- Close the books with finance team and prepare reports for the board
- Review and update your accountable reimbursement plan if needed
April
- Personal tax deadlines hit your staff and donors -- this is when questions spike
- Common questions: 'What is housing allowance?' 'Where's my statement?' 'Is my donation tax-deductible?'
- Have your contribution statement template and giving FAQ ready to resend quickly
The simple goal
By the end of January, you want payroll and contractor reporting locked. The rest of the season becomes donor care and clean reporting -- not scrambling for W-9s.
Giving statements that donors can actually use
Your contribution statement isn't just a courtesy -- it's how donors substantiate charitable deductions on their tax returns. The IRS has specific rules about what must appear on these statements, and two thresholds are where most churches get tripped up.
The $250 contemporaneous written acknowledgment rule
When a donor makes a single contribution of $250 or more, they need a written acknowledgment from the church to substantiate the deduction. Separate gifts are generally not aggregated to reach the $250 threshold -- each individual contribution is evaluated on its own. The acknowledgment must be 'contemporaneous,' meaning the donor has it by the time they file their return or the due date (including extensions).
Best practice
Provide annual statements to every donor -- not just those who gave $250 or more. This way you maintain one statement format that meets the stricter requirements, instead of managing two separate systems.
The $75 quid pro quo disclosure rule
If a donor's payment exceeds $75 and they received goods or services in exchange -- a banquet ticket, a fundraising dinner, event merchandise -- the church must provide a written disclosure statement. That disclosure needs to explain the deductible portion and give a good-faith estimate of the value the donor received.
This matters because churches run a lot of events that feel like 'donations' but include tangible benefits. A $100 gala ticket where $60 goes to the church and $40 covers the meal requires a disclosure statement. Most churches never think about this until a donor's CPA asks.
Your giving statement checklist
Every contribution statement should include:
- Donor name and contact information (as recorded in your system)
- Church legal name and address
- Dates and amounts of each contribution (and whether cash, check, or online)
- A statement that no goods or services were provided in exchange for the contribution -- or a description and good-faith valuation if they were (quid pro quo)
- For non-cash gifts: a description of the property and the date received (valuation is generally the donor's responsibility, not the church's)
Check your template
If you're not sure your statement template meets IRS requirements, cross-check against IRS Publication 1771 and review it with your CPA. A missing 'no goods or services' statement is the most common error.
Payroll forms: where churches are unique (and where they're not)
Churches often assume 'we're tax-exempt, so payroll is simpler.' It's usually the opposite. Between clergy dual tax status, housing allowance exclusions, and SECA requirements, church payroll has more edge cases than most small businesses. Here's what every church needs to get right.
W-2 and W-3 basics
Every church with employees must furnish W-2s reporting wages, tips, and other compensation. The W-3 transmittal form accompanies the W-2s filed with the SSA. The exact due date can shift year to year when January 31 lands on a weekend or holiday, so treat January 31 as the anchor and confirm the specific date each year.
Quarterly filings still matter
Most churches file Form 941 quarterly to report income taxes withheld and employer/employee shares of Social Security and Medicare taxes. Some smaller churches may qualify to file Form 944 annually instead. Either way, these filings are not optional for churches with employees -- tax-exempt status doesn't exempt you from payroll tax reporting.
Clergy-specific gotchas: housing allowance and SECA
Clergy compensation is where small errors create big confusion. Three things every church administrator needs to understand:
- Housing allowance (or parsonage allowance) can be excluded from income tax within IRS-defined limits, but it must be properly designated in advance by the employing church -- typically through a board or congregational resolution before the start of the tax year
- The housing allowance exclusion is income-tax specific. It is generally not excluded when determining self-employment earnings for SECA (Self-Employment Contributions Act) purposes
- Ministers are generally not subject to FICA for compensation for services in the exercise of ministry. SECA typically applies instead, unless the minister has received an approved IRS exemption (Form 4361)
Don't DIY clergy payroll
Clergy payroll is not 'figure it out in QuickBooks' territory. Run it with a payroll provider or CPA who specifically understands church payroll. The intersection of income tax exclusions and self-employment tax creates situations that generic payroll software handles incorrectly.
One more often-missed note: FUTA
Churches and religious organizations are not liable for FUTA (Federal Unemployment Tax Act). This is explicitly stated in IRS guidance. If your payroll provider is charging you FUTA, flag it immediately.
Contractors and 1099-NEC: stop the scramble before it starts
The January 31 deadline for Form 1099-NEC is one of the most common 'oh no' moments for churches. Guest speakers, worship leaders treated as contractors, graphic designers, cleaning services, IT support -- churches use more contractors than they realize, and January is when the paperwork catches up.
A clean contractor workflow
- Collect a W-9 before you pay. If you wait until January to chase W-9s, you'll spend weeks on emails and phone calls. Make the W-9 a prerequisite for the first check, not an afterthought
- Tag vendor payments in your system. Create categories for common contractor types: guest speakers, musicians, designers, maintenance contractors, IT consultants. This makes year-end reporting a filter query, not a manual search
- Track the $600 threshold. Many 1099-NEC situations hinge on paying $600 or more to a single payee during the tax year. If you're categorizing payments all year, you'll see who crosses the threshold without a December scramble
- Don't guess worker classification. The difference between a W-2 employee and a 1099 contractor isn't about convenience -- it's about IRS criteria. Misclassification creates back taxes, penalties, and interest. When in doubt, ask your CPA or payroll provider early
A common church scenario: you hire the same guest worship leader six times a year at $250 per service. That's $1,500 -- well above the $600 threshold. Without a W-9 on file and payments tagged correctly, this becomes a January crisis. With the right system, it's a one-click report.
Reimbursements, mileage, and the accountable plan issue most churches overlook
Churches try to be generous with staff: mileage allowances, monthly 'ministry expense' budgets, discretionary spending, travel reimbursements. But the IRS draws a sharp line between reimbursements under an accountable plan and those under a non-accountable plan -- and the tax treatment is dramatically different.
What makes a reimbursement plan 'accountable'
An accountable plan must meet three requirements according to IRS guidance:
- Business connection -- the expense must be connected to the employee's work for the church
- Substantiation -- the employee must provide receipts, dates, amounts, and business purpose within a reasonable time
- Return of excess -- any amounts paid beyond substantiated expenses must be returned to the church within a reasonable time
Under an accountable plan, reimbursements are not taxable income. Under a non-accountable plan -- or when you pay flat 'allowances' without requiring substantiation -- the payments become taxable compensation that should be reported on the employee's W-2.
The most common mistake
Paying a flat $300/month 'car allowance' without requiring mileage logs. This is a non-accountable arrangement. The $300 is taxable income, and if you haven't been reporting it on W-2s, tax season is when this creates awkward payroll corrections.
Practical steps to reduce risk
- Require receipts or logs for every reimbursement (date, purpose, amount, business connection)
- Use a consistent approval workflow -- the same person shouldn't approve and receive reimbursements
- Keep mileage logs when reimbursing auto expenses: date, destination, business purpose, miles driven
- Set a deadline for submitting expense reports (e.g., within 30 days of the expense)
- Document your accountable plan policy in writing and have the board approve it
Recordkeeping: what audit-ready actually looks like for a church
Even tax-exempt organizations must maintain books and records sufficient to justify their exemption and accurately file any required returns. The IRS guidance lists common record types churches should retain: board minutes, ledgers, payroll records, bank records, and invoices. But 'audit-ready' isn't about paranoia -- it's about continuity.
Staff turnover is normal in churches. When the bookkeeper who 'knows where everything is' moves on, the church is only as strong as its documentation. Good records protect everyone -- the church, the staff, the donors, and the next person who steps into the role.
A simple church recordkeeping framework
- Central document vault: board minutes, bylaws, policies, contracts, insurance documents, housing allowance resolutions
- Finance archive: bank reconciliations, invoices, payroll reports, receipts, giving records, 1099s and W-2 copies
- Role-based access: separate who can view donor details from who can view staff compensation -- not everyone needs access to everything
- Retention timeline: work with your CPA to define how long you keep each category (payroll records are typically 4-7 years; some documents should be kept permanently)
The continuity test
Ask yourself: if your church administrator resigned today, could someone step in and find every document they need within a week? If the answer is no, your recordkeeping system has a single point of failure.
How a modern CHMS makes tax season repeatable
Most churches don't fail tax season because they don't care. They fail because the process depends on one person's memory and a collection of spreadsheets that only make sense to their creator. A church management system turns compliance into a workflow -- repeatable, documented, and survivable when staff changes.
What a CHMS should handle for tax season
- Automated giving statements with templates that include all IRS-required language -- no manual formatting every January
- Clean donor profiles with verified contact info so statements actually reach people (returned mail is a bigger problem than churches admit)
- Tags and categories for contractor payments -- filter by vendor type, payment amount, and date range to generate 1099 reports in minutes
- Task automation for January workflows: 'missing W-9' lists, 'receipt needed' queues, statement generation reminders, and board report deadlines
- Reimbursement tracking with receipt upload, approval workflows, and audit trails
- Audit trail for every change: who modified a donor record, who approved a reimbursement, when a housing allowance designation was recorded and by whom
That's the real upgrade: not 'more features,' but fewer single points of failure. When the process lives in the system instead of someone's head, January becomes a checklist instead of a crisis.
Make tax season boring (in the best way)
Relius automates giving statements, tracks contractor payments, and keeps your records audit-ready year-round.
Start a conversationYour next move: pick one process to systematize this week
You don't need to overhaul everything at once. Pick the area that caused the most pain last January and build a system around it. Here are three starting points:
1. Create a contractors checklist
W-9 required before first payment. Every payment tagged by vendor category. December review of all contractors approaching $600. 1099-NEC filed by January 31. This one workflow eliminates the most common tax season scramble.
2. Build a reimbursement workflow
Receipt required within 30 days. Approval by someone other than the requester. Documentation stored in a central system -- not a shoebox. Excess returned. This protects your staff from accidental taxable income and your church from audit exposure.
3. Fix your giving statement template
Make sure it handles both standard donations and quid pro quo contributions. Include the 'no goods or services' language. Test it with your CPA. Then automate it so January giving statements are a one-click operation, not a week-long project.
And if you're publishing church content online, internally link to your related resources. Your posts on digital giving trends, data security, and church communications all connect to tax season readiness. When readers -- and search engines -- can go deeper, your content works harder.
FAQ: quick answers churches ask every year
Do churches file Form 990?
Many churches are excepted from filing Form 990 under IRC Section 508(c)(1)(A). However, related organizations (like a church-run school or separate foundation) may not qualify for the same exception. Confirm your specific entity type with your CPA.
When are W-2s due?
W-2s must generally be furnished to employees by January 31. If January 31 falls on a weekend or holiday, the deadline moves to the next business day. The same deadline applies for filing with the SSA.
When are 1099-NECs due?
Form 1099-NEC must be filed with the IRS and furnished to recipients by January 31. There is no automatic extension for this form.
Do we have to give donors a contribution statement?
If donors want to deduct contributions of $250 or more, they need a contemporaneous written acknowledgment from the church. Best practice: issue annual statements to all donors so everyone has documentation and you maintain one consistent process.
What's a quid pro quo contribution?
A payment that is partly a donation and partly for goods or services -- like a $100 fundraiser dinner ticket where $40 covers the meal. If the payment exceeds $75, the church must provide a written disclosure estimating the value of what the donor received.
Is housing allowance taxable?
Housing allowance can be excluded from federal income tax within IRS-defined limits if properly designated in advance by the church. However, it is generally included when calculating self-employment tax under SECA. The designation must happen before the tax year begins.
Are churches subject to FUTA?
No. The IRS explicitly states that churches and religious organizations are not liable for FUTA (Federal Unemployment Tax Act).
What's the fastest way to reduce tax season chaos next year?
Stop relying on January memory. Build year-round workflows: collect W-9s before payment, tag contractor payments by category, require reimbursement substantiation within 30 days, and automate giving statement generation. The churches that have a boring tax season are the ones that systematized it.