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Our board is considering providing a regular weekly stipend to the person who (up to now) has been a “volunteer” worship leader. Can we consider her an “independent contractor” and avoid paying taxes and Social Security?

The word “stipend” is just another term for “taxable compensation.” Whether the worship leader is an employee or an independent contractor depends on a variety of factors. The most important issue is how much control the church exercises over the worship leader. The church has significant control over “when” the activities are provided. There may be less control over exactly “how” the activities are provided. If this person is a worship leader at other churches (in other words they hold themselves out to be a professional worship leader), then there may be a sound basis to treat the person as an independent contractor. However, if your church is the only one at which the individual leads worship, it is likely the IRS would consider the individual an employee, subject to the employment tax rules.

See Also: Memo #2 - Church Employees or Independent Contractors?