Clergy Compensation An Overview Know the Basics Pensions and Benefits USA Church of the Nazarene
The Three “P”s of Local Church Expenses Note: Allocating the cost Program of having a Pastoral Personnel Ministry may include some expenses in each Property of these categories. Pensions and Benefits USA Church of the Nazarene
Some Ground Rules • The cost of having a pastoral ministry includes two parts: – The cost of what is done: Program costs ( and maybe Property costs) – The compensation for who does it (Memo #4): Personnel costs • Ministers have a unique tax status (Memo #12 and Busby’s Tax Guides) . – First: Determine IRS “minister” status – Income Tax: Employee (Form W2) – Social Security Tax: Pays as if self-employed (SECA) • The local church employer must remain engaged in the process. Pensions and Benefits USA Church of the Nazarene
It Matters How “Pastoral Ministry” Expense is Paid! Finally: Salary Finally: Salary First: Expense Reimbursements Third: Partially Tax-Favored Second: Benefits Tax-Favored Benefits Pensions and Benefits USA Church of the Nazarene
1. Expense Reimbursements Local Church Program Expense • Set up an Accountable Expense Reimbursement Plan (Memo #11). • The Five “W”s of accountability: – What, Why, When, Where, Who • Avoid: – Receiving any budgeted “balance” at yearend – “Reclassifying” funds after payment Pensions and Benefits USA Church of the Nazarene
2. Fully Tax-Favored Benefits The First Level of Compensation • Why? Dollars are free of both SECA and Income Tax liability. • What Benefits? – “Health and Welfare” benefits (e.g., insurance) – Caution: New rules regarding “health benefits” per ACA – 403(b) Plan contributions (clergy only for SECA) – Some “cafeteria” benefits (e.g., dependent care) – Caution: Use the services of a qualified benefits provider or legal counsel when setting up local church-sponsored benefit plans. Pensions and Benefits USA Church of the Nazarene
Nazarene Senior Pastor Analytics Towers Watson Study Results Pensions and Benefits USA Church of the Nazarene
3. Partially Tax-Favored Benefits The Second Level of Compensation • Housing and/or Housing Allowance – Memos #1 and #13 • Three tests for exclusion: – Designated in advance – Spent on qualifying expenses – Does not exceed Fair Market Rental Value • Subject to SECA taxation • Certain expenses paid with housing allowance may also be deductible. Pensions and Benefits USA Church of the Nazarene
4. Fully Taxable Remuneration Final Level of Compensation • Cash Salary! • How much is enough? (Memo #7) – Principle of thirds – Reflects the market value of the work – Is reviewed “at least” annually – Review includes performance (Benchmarks) http://compstudy.lifeway.com Pensions and Benefits USA Church of the Nazarene
The Bi-vocational Pastor • Depending on one’s definition, as many as half of clergy are “dual employed.” • Reimburse expenses first, then take tax-favored benefit payments (e.g., disability insurance). • Idea: Report your pastoral work and your secular work to your board. • Don’t forget about retirement! Pensions and Benefits USA Church of the Nazarene
It Matters How “Pastoral Ministry” Expense is Paid! Finally: Salary Finally: Salary First: Expense Reimbursements Third: Partially Tax-Favored Second: Benefits Tax-Favored Benefits Pensions and Benefits USA Church of the Nazarene
Serving Those Who Serve Pensions and Benefits USA Church of the Nazarene
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