Opening a bank account in the name of your church is a simple process. A bank account is necessary for a church to begin to receive offerings, protect donations and money from fund-raisers, deposit tax with-holdings, and pay church operation costs. In fact, a bank account is required to comply with many of the federal governments' regulations.
The process of obtaining an account for your church is different from opening a personal account. The first thing you need to do is apply for an Employer Identification Number through the Internal Revenue Service. An EIN, also referred to as a with-holding number, or tax identification number, is a nine-digit number assigned to you by the IRS to identify your tax account. It is unrelated to the church's tax-exempt status, but required for any entity with-holding income and Social Security taxes from employees' paychecks.
There are four ways to apply for an EIN. The fastest, and preferred, method is to apply online at www.irs.gov. Information submitted is verified during the online process, and an EIN is issued immediately. You will be able to print a confirmation letter instantly following application verification.
Before you begin the application process, have on hand the name, and social security number of the person responsible for handling the bank account. It is probably your church treasurer, or secretary. You'll also need to know the mailing address, and county, in which business is conducted. A physical address is needed if the mailing address is a P.O. Box.
You can also get an EIN instantly by applying over the phone. Apply Monday through Friday from 7:00 AM to 10:00 PM in your time zone.
If you download IRS form SS-4 from the website you can fax or mail it. Faxed applications are issued EINs within 4 business days. Mailed applications will receive notification via mail of assigned EIN in 4-5 weeks.
It is important to have all information correct when applying for your EIN. Any wrong information will delay the process.
Once you have your EIN you can open a bank account in your independent church's name. Each bank requires different documentation before they will open an account. Typical information asked for is:
- EIN and proof it is assigned to your church
- Photo identification, and social security numbers of the account's authorized signers
- Listing of church's officers
A bank account in the church's name keeps your church compliant with federal laws regarding payroll tax deductions. The IRS requires any church that with-holds $2500 in payroll taxes, or more in a calendar quarter, to deposit those with-holdings in a bank account. A deposit schedule, set up by the IRS for tax with-holdings, must be adhered to. Severe penalties exist when money is not deposited on time, or at all.
It is easy to overlook some of the fundamental laws regarding church finances. Oftentimes, church treasurers are volunteers, and mistakenly believe the church is not accountable to the government for financial reporting because it is a nonprofit organization. There is also a high turnover rate in this position which can leave gaps in record keeping.
The treasurer, or responsible party, needs to thoroughly understand the reporting procedures for the IRS. They are taking a great risk in this position. The IRS can hold the appointed person responsible for paying 100 percent of funds not deposited, and penalties for late deposits.
Having a system in place to handle church finances will save you a lot of time and heartache in the long-run. Accounting software will make tracking deposits, withdrawals, and reconciling bank statements easy. Back-up electronic and paper files regularly, and store them in a safe place. This protects the church's records in case of fires, floods, and theft. The most important thing is to become familiar with the IRS rules regarding church finances.
Shop around for the best banking rates. You do not want your deposits significantly impacted by account fees. All banks are not the same. You have to protect your church's money. Some key points to ask about are:
- Fees you don't understand
- Minimum balances
- Returned check fees
- Fees for banking in-person vs. online banking
- Loans (you may need this in the future)
- Confidentiality of information (do not take for granted that your finances will be kept secret)
- Who are the banking officers (can be a conflict of interest)
In addition to performing church work, and keeping parishioners souls fulfilled, you have to pay attention to your church's finances. A bank account protects your church from committing fraud unintentionally. The IRS levies punishment for misappropriation of funds that are intentional, or unintentional. Not only is your church affected, but the entire organization is negatively impacted when funds are mishandled. For more information the IRS publishes the booklet Tax Guides for Churches and Religious Organizations. You can download the booklet at www.irs.gov.
