Church and Taxes San Jacinto Baptist Association October 2015 - PowerPoint PPT Presentation

Church and Taxes San Jacinto Baptist Association October 2015

Updates for 2015 Standard mileage rate 56 cents per mile, 14 cents 1. charity $18,000 maximum contribution deferral to 403(b) or 2. 401(k) plan $6,000 catch-up limit for contributions deferral to 3. 403(b) or 401(k) age 50 or older Personal exemption $4,000 each individual, with 4. phaseouts Standard deduction $12,600 for joint returns $6,300 5. for filing single and married filing separately Tax brackets 10%, 15%, 25%, 28%, 33%, 35% & 39.6% 6.

Minister Criteria Five key questions Is the person ordained, licensed, commissioned? 1. Does the person administer ordinances (Sacerdotal 2. functions) i.e. baptism and the Lord’s Supper? Does the person conduct religious worship? 3. Does the person have management responsibilities in the 4. church? Is the person considered to be a religious leader by the 5. church?

Minister Credentials General Rule – Ministry begins with ordination Exception for Licensed Minister - who has been granted authority to perform substantially all the religious functions of an ordained minister - Marriages - Funerals - Baptisms - Communion - Preaching - Teaching

Unique Tax Issues for Ministers Ministers have a dual tax status Employee for IRS purposes (W-2) 1. Self-Employed for Social Security (SECA) 2. - file form SE on 1040 - never ever never ever withhold social security - IRC Sec 3121 states that ministers wages are not wages for FICA

Unique Tax Provisions for Ministers Eligible for housing allowance exclusion – IRC Sec 107 1. Self-employed status for Social Security – IRC Sec 1402(c) 2. Exemption from mandatory income tax withholding – IRC Sec 3. 1401(a)(9) Voluntary income tax withholding – Reg.31.3402(p)-1 4. Exemption for Social Security coverage – IRC Sec 1402(e) (very 5. limited circumstances) “ Double dipping ” benefit for deducting mortgage interest and real 6. estate taxes as itemized deductions (Schedule A) and inclusion in housing allowance computation

Minister Housing Available only to those meet the IRS criteria for Minister Must be the lesser of: - Fair rental value of similar furnished house - Amount designated - Actual housing expense incurred Exempt from Federal Income taxes Taxable as Self-employment income (Social Security)

Minister Housing Must be designated by the employer/payer (the church) and Must be designated in advance of being paid and Must be designated in writing Can be amended during the year => amendment is only effective on a prospective bases Responsibility falls on the minister to notify the church of any inaccurate estimates for changes

Qualified Housing Expense  Utilities ( gas. Electricity,  Down Payment on home water, sewerage/trash,  Mortgage payment (principal & telephone, cable/satellite) interest)  Furnishings and appliances  Rental payment  Repairs and remodeling  Real estate taxes  Yard care/Landscape  Homeowners insurance  Maintenance items (cleaners, light bulbs, pest control, etc)  HOA dues  Not Maid services  Not food

Housing Form Housing Allowance Designation I __________________________________ hereby designate the following expenses for housing allowance shall apply to calendar year 2013 and all future years unless otherwise changed. Item Amount 1Down payment on a home $ 2Mortgage payments on a loan to purchase or improve your home (include principal and interest) $ 3Monthly Rental 4Real Estate taxes $ 5Home Owners Insurance $ 6Utilities (electricity, gas, water, trash pickup, local telepone charges) $ 7Furnishings and appliances (purchase and repair) $ 8Structural repairs and remodeling $ 9Yard maintenance and improvements $ 10Maintenance items (pest control, etc.) $ 11HOA dues $ 12Miscellaneous $ $ $ $ $ $ $ Total Expenses: $ Signature: _______________________________________ Date: ___________________________ Company Officer signature: _______________________________________________ Date: __________________________

Compensation  Personal portion of cell phones  Base salary/wages  Life insurance outside of group plan  Bonuses  Reimbursement for portion of SE tax  Travel advances without subsequent documentation  Special occasion gifts  Reimbursements through a non- Incentive compensation  accountable reimbursement plan  Severance pay  Travel for spouses & family  Below market loans  Forgiveness of minister’s debt to  Gift Cards the church. Noncash Gifts   Personal use of employer provided auto Payment of auto expenses   Auto allowances

Write It Down !!!!! Compensation packages should be approved by a  governing body of the church and documented noting the date it was approved and who approved it. For certain persons, the church must also  document the outside sources used to determine reasonable compensation.

Fringe Benefits Nontaxable - Normally  Housing Allowance Contributions to Qualified Retirement Plans   Health Insurance Premiums (group plan provided) Employer provided room and board (for the convenience of the  employer)  Reimbursements under an accountable plan Taxable - Maybe ???? Group term life insurance ($50,000 and greater taxable)  Payment of out of pocket medical expenses (Sec 125, MSA ’ s)   Dependent Care plan  Tuition assistance plan  Benefits provided through a cafeteria plan Employer provided auto personal use always taxable 

Payroll - Reporting It Right Form 941- Quarterly Reporting Taxable items are included on the quarterly reports  Minister ’ s housing allowance is never included  since it is not taxable Should always reconcile with ledgers 

Payroll - Reporting It Right W-2 – Annual Reporting Taxable items included along with appropriate taxes  that have been withheld Special reporting required for certain benefits and  forms of compensation in Box 12 - Dependent care - Elective deferrals into retirement plans - Value of employer provided health insurance benefits required to be disclosed  Housing allowance can be reported in Box 14, but not mandatory. Should never ever be included anywhere else on W-2

Payroll - Reporting It Right

Payroll - Reporting It Right

Payroll - Reporting It Right Form 1099- Misc Report payments of $600 or more to  nonemployees for personal services rendered Exceptions  - Corporations unless attorney fees - Payments to vendors for merchandise Penalties apply if church doesn ’ t send 1099 ’ s  Due to the payee by January 31, 2016   Due to the Social Security Adm by February 29, 2016

Payroll - Reporting It Right

Employee or Independent Contractor Tax Court ’ s 8 Factor Test 1. Degree of control exercised by employer over details of work 2. Which party invest in facilities used in work 3. Opportunity of individual to profit or loss 4. Whether employer has right to discharge the worker Whether the work is part of employer’s regular business 5. 6. Permanency of relationship 7. Relationship the parties believe they are creating 8. Provision of benefits typical to those provided to employees

Employee or Independent Contractor Degree of control over the worker IRS 20 Factor Test Training 1. Integration – services integrated into church 2. operations Services rendered personally 3. Hiring, supervising or paying assistants 4. Instruction 5. Continuing relationship 6. Setting hours or work 7. Full time required 8. Working on employers premises 9. 10. Order or sequence of work 11. Oral or written reports

Employee or Independent Contractor Degree of control over the worker IRS 20 Factor Test - cont 12. Payments by hour, week, or month 13. Payment of business expenses 14. Furnish tools or materials 15. Significant investment – church furnish all necessary facilities 16. Realization of profit or loss 17. Working for more than one org at a time 18. Making services available to general public 19. Right to discharge 20. Right to resign

Correction options Voluntary Classification Settlement Program A. - allows qualifying employers to reclassify workers from independent contractor to employees by paying a small amount representing potential taxes from prior years. Qualifying employer 1.  must be presently treating the workers as nonemployees  must have filed all Forms 1099-Misc for 3 prior calendar years  consistently treated the workers as nonemployees  not currently under examination for this issue by the IRS, DOL, or any state employment agencies. Procedure 2.  employer must file Form 8952 at least 60 days prior to the effective date of the reclassification – reclassify on January 1, 2016 must be filed by November 2, 2015  must pay the taxes assessed on Form 8952  tax works is approximately 1% of the total wages paid for recently completed tax year  not currently under examination for this issue by the IRS, DOL, or any state employment agencies. Prior Tax Assessments 3.  IRS agrees not to assess any additional payroll taxes for the open years prior to the re- classification for the workers reclassified