6) Worker classifications.
Churches must make sure they properly classify individuals as employees or independent contractors—or else face hefty penalties. Several cases decided last year, including one involving the ride-sharing app Lyft, revealed how expensive misclassifications can run. Lyft paid the state of New Jersey nearly $20 million after misclassifying 100,000 people as independent contractors.
7) Payroll tax compliance.
Churches must verify payroll taxes are correctly paid, whether directly or through a third-party payroll service, or face significant liability (see “Employment Taxes” in our online Legal Library).
A former certified public accountant from Texas was found guilty of payroll tax fraud in 2025 after withholding taxes from employee wages, but never paying them to the IRS, according to Thomson Reuters.
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Remember, churches must withhold income, Social Security, and Medicare taxes from employees’ wages, but do not withhold Social Security or Medicare taxes from ministerial wages.
8) Substantiating noncash donations remains crucial.
A recent US Tax Court decision denied a couple’s ability to deduct nearly $200,000 in noncash charitable contributions, largely because they did not provide substantiation regarding how, when, and at what value they acquired the personal property—and the person they used to appraise the property’s value when they donated it did not meet statutory and regulatory requirements for an appraiser.
9) Religious freedom issues persist.
Religious freedom issues continue to spring up locally and nationally. These recent headlines illustrate how:
- President Trump created the Religious Liberty Commission.
- The Wisconsin Supreme Court rebuffed an effort by the state’s department of justice to strip tax exemption for all religious entities (on the heels of the US Supreme Court’s unanimous decision against the state’s attempt to deny an unemployment tax exemption to a Catholic charity).
- Street preachers in Florida unsuccessfully challenged a city noise ordinance.
- The Kentucky Supreme Court said the denial of a permit to construct a religious shrine did not violate the Religious Land Use and Institutionalized Persons Act (RLUIPA).
- The state of Indiana filed a motion and a supporting brief in federal district court seeking to have a monument including the Ten Commandments relocated back on statehouse grounds. The state argues the US Supreme Court’s 2022 decision to evaluate Establishment Clause cases based upon “historical practices and understandings … consistent with the understanding of the Founding Fathers” supports its case.
Church Law & Tax will track these issues—and many more—throughout 2026. Be sure to sign up for the free weekly e-newsletter to keep up.
