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1. Church Treasurers Workshop May 12, 2009 We are called to be good witnesses of our Lord to this world. Therefore, we MUST strive to do that which is right and pleasing in Gods sight!
2. How Many of you do not give your pastor a W-2?
give 1099 to revival or other speakers who earn more than $600 in your church?
have a custodian and do not give them a 1099?
take up love offerings and do not include it as W-2 wages for the recipient?
give a contribution credit for persons giving to a love offering through the church?
3. How Many of you have at least 2 non-related people counting the money each Sunday?
take Sundays offerings home with you and deposit it on Monday without 2 people counting the money?
have a benevolence fund administered by the Pastor?
give your pastor a social security offset?
have ever let someone buy something from the church at a reduced price?
rent out the parsonage? church for weddings? fellowship hall for family reunions?
sent your pastor on a trip to the Holy Land or some other location?
do not have an accountable reimbursement plan?
4. Estimates run from 65 85% of churches may be out of compliance with the rules, regulations, and laws that govern withholding, charitable giving, staff policies, etc.
5. The information being shared with today is a good faith effort to inform you of expectations of the IRS and state to comply with maintaining non-profit status as a church. Certain circumstances may require that you talk more fully with an accountant or agent.
6. Scriptural premises to serve as our guidelines ..You shall be my witnesses. Acts 1: 8
Give to Caesar what is Caesars and to God what is Gods. Matthew 22: 21
7. Issues For Discussion IRS rules and regulations for ministers and church staff
Charitable giving requirements
Reclamation of NC Sales Tax
Need For Personnel policies and procedures
Importance of staff being a part of the Guidestone Retirement system
Records keeping requirements
Q and A
8. The Dual View Of Those In Ministry Ministers are considered and employee of the church for IRS purposes.
Ministers are considered as self-employed for Social Security purposes
9. Many Churches are out of compliance with the law. This can lead to substantial penalties. Federal law specifies that any corporate officer, director, or employee who is responsible for withholding taxes and paying them over to the government may be liable for a penalty in the amount of 100% of such taxes if they are either not withheld or not paid over to the government.
10. Many Churches are out of compliance with the law. This can lead to substantial penalties. This penalty is of special relevance to church leaders, given the high rate of noncompliance by churches with the payroll reporting procedures.
11. Special rules UNIQUE to the church Ministers are ALWAYS self-employed for Social Security purposes and must pay their own SECA (not FICA).
You may need to know that some ministers are exempted from Social Security due to religious considerations. They must have the appropriate forms on file with the government.
12. Special rules UNIQUE to the church A ministers wages are exempt from income tax withholding. However, some ministers do elect to allow the church to withhold taxes. Generally, the pastor should pay estimated taxes on a quarterly basis to avoid penalties for underpayment of taxes.
13. Maximizing Tax Benefits For Ministers I operate from the premise that the church should do all it can to maximize the earnings of its ministers. Many churches can not afford to pay high salaries. However, EVERY church can and should maximize the earnings of its ministers and protect the ministers family as much as possible.
14. Maximizing Tax Benefits For Ministers HOUSING ALLOWANCE (Homeowner): This is the most important benefit for those in ministry. Make certain a portion of the ministers compensation is designated - by vote of the church (or appropriate committee with expressed authority) as housing allowance for the minister. If you fail to do that it is considered gross pay and therefore taxable income to the minister.
15. Housing Allowance Information The housing allowance is nontaxable for income tax reporting purposes
Housing allowance is considered in the computation of SECA.
Ministers living in their own homes may also deduct interest, taxes, etc.
Ministers living in church-owned homes may exclude the fair-rental value from their gross pay
16. Housing Allowance Information Out-of-pocket expenses (utilities, furnishings, repairs, etc.) in the parsonage may also be excluded from their gross pay
Remember---the amount designated as housing allowance MUST BE approved by the church in advance and though excluded for income tax purposes, it must be included in the ministers computation of SECA.
17. Housing Allowance Information The IRS recognizes employee contracts, covenants, minutes of business meetings, budgets, etc. PROVIDED the church has duly adopted the designation as a housing allowance.
Giving your pastor $150,000 and saying break it down pastor any way you like, is not accepted by the IRS as appropriate.
18. Maximizing Tax Benefits For Ministers Another premise I operate from is that the church should UNDERSTAND, the cost of the pastor being your pastor is NOT income to the pastor. THEREFORE, the church should do everything it can to insure he does not have to pay taxes on money that he uses to serve the church as its minister. The church should understand there are operating expenses to serving as your minister.
19. Maximizing Tax Benefits For Ministers Every church should ADOPT an ACCOUNTABLE REIMBURSEMENT PLAN for its ministers/staff. The basic rule of thumb is, staff members have to be accountable to someone either the church or to the IRS. To make your staff members accountable to the IRS means that they will have to pay taxes for expenses it cost them personally to serve as your minister. That should NOT happen.
20. Accountable Reimbursement Plan The BEST way for ministers to handle their ministry-related work expense is through an accountable reimbursement plan:
A church agrees to reimburse staff for all ministry-related expenses that are properly substantiated as to the date, amount, place, and ministry purpose.
Reimbursements in such a manner are not considered taxable income. An allowance is considered taxable income.
21. Accountable Reimbursement Plan The church should establish an accountable expenses reimbursement plan in an appropriate resolution/motion. When making such a motion, the church should pay close attention to:
1. Condition the reimbursement of any expense on adequate substantiation. This will include written evidence for all expenses, and receipts for expenses of $75 or more. The evidence must substantiate the amount, date, place, and business nature of each expense. $75 figure is IRS requirement----
22. Accountable Reimbursement Plan BUT------I would expect the minister to turn in MOST receipts under $75 as well. I would have a provision for a statement of explanation for reimbursement of items that a receipt might not be available (I.e. fast food meal, parking fees, etc.)
The KEY POINT is this: the church MUST require the same degree of substantiation as would be required for a deduction on the ministers income tax return.
23. Accountable Reimbursement Plan 2. Expenses must be substantiated, and excess reimbursements returned to the church, within a reasonable period of time. According to IRS rules, expenses substantiated within 60 days are deemed appropriate as is excess reimbursements received within 120 days.
Reimbursements to ministers for non-ministry related, personal expenses should be included as taxable income on the ministers W2.
24. Complying With Federal payroll tax reporting obligations.. Yet another premise I feel is important and under which we should operate is the fact that a church should be a good witness to the world around us by complying with the rules, regulations, proceduresthe law. The following slides will deal with 11 steps to insure your compliance.
25. Complying With Federal payroll tax reporting obligations.. STEP ONE: Obtain an employer identification (EIN) from the federal government if this has not been done.
This is NOT a tax-exemption number!
26. Complying With Federal payroll tax reporting obligations.. STEP TWO: Determine whether church workers are employees or self-employed.
* Churches must withhold 30% of pay to a self-employed person who has not supplied a SS number
* Some employee benefits are non-taxable ONLY when received as employees
* The Church Annuity Plan covers only W2 employees
27. Complying With Federal payroll tax reporting obligations.. STEP THREE: Obtain the Social Security Number for each worker.
Churches can be penalized if the Social Security number they report is incorrect.
28. Complying With Federal payroll tax reporting obligations.. STEP FOUR: Have each employee complete a W4.
Ordained ministers do NOT have to complete a W4 UNLESS they enter into a voluntary withholding with the church.
29. Complying With Federal payroll tax reporting obligations.. STEP FIVE: Compute each employees taxable wage
Wages subject to federal withholding include pay given to any employee for services performed. The pay may be cash or in other forms. Non-money pay must be fair-market value.
30. Complying With Federal payroll tax reporting obligations.. WAGES: Wages often include a number of items in addition to salary, Here are some common examples:
Bonuses Christmas/Special occasion Gifts
Retirement Gifts SOCIAL SECURITY OFFSET
Personal use church car Church loan below-market interest
Forgiven debts Expenses with NO accountable plan
Purchases of church property for less than fair-market
31. Complying With Federal payroll tax reporting obligations.. STEP SIX: Determine the amount of income tax to withhold from each employees wages.
The most common way to determine is through the wage bracket method but you can use the percentage method.
32. Complying With Federal payroll tax reporting obligations.. STEP SEVEN: Withhold Social Security and Medicare (FICA) taxes from non-minister employees wages.
The combined Social Security and Medicare tax rate is 15.3% of each employees wages. This is divided by the employer and the employee. Therefore, the churchs portion is 7.65% of the employees wages.
The church MUST withhold the employees share of social security.
REMINDER: Any Social Security Offset by the church for a minister is considered taxable income to the minister.
33. Complying With Federal payroll tax reporting obligations.. STEP EIGHT: The church MUST DEPOSIT the taxes it withholds
The church accumulates 3 kinds of federal payroll taxes: income taxes, employer's share of SS taxes, and employees share of SS taxes. ALL must be deposited on a monthly basis. MOST CHURCHES, beginning in 2001 can make payments every three months UNLESS they have more than $2500 combined quarterly employment taxes.
34. Complying With Federal payroll tax reporting obligations.. STEP NINE: All employers subject to income tax withholding, Social Security and Medicare, or both, MUST file Form 941 quarterly
Forms are due April 30, July 31, October 31, and January 31
It is the position of the IRS national office that churches with only one employee (the minister) need NOT file a Form 941
35. Complying With Federal payroll tax reporting obligations.. STEP TEN: Prepare a W2 for EVERY employee including ordained ministers. Employee should receive no later than February 1
TAKE NOTE OF ANY CHANGES IN THE W2 FORM FROM YEAR TO YEAR
For ministers, you do NOT include designated housing and reimbursed ministry expenses on the W2. The church does NOT report Social Security or Medicare wages for the minister.
36. Complying With Federal payroll tax reporting obligations.. REMEMBER----wages for income tax purposes include:
* Bonuses *The cost of sending the pastor to the Holy
* Church gifts Land if paid by the church
* SS Offset * Personal use of church-provided car
* Purchases of church * Business expense reimbursements under a property below market non-accountable plan
* Moving expenses paid * Church paid group insurance beyond DIRECTLY to pastor $50,000
* Discretionary funds * Below-market interest loans by the for the pastor to spend church
as he sees fit * Debt forgiven by the church
37. Complying With Federal payroll tax reporting obligations.. MORE EXAMPLES----wages for income tax purposes include:
* Severance pay * Payment of the ministers personal
* Churchs reimbursement expenses by the church
of spouses expenses * Per Diem rates higher than IRS
* Travel reimbursement guidelines
higher than IRS * Reimbursement for spouse conference expense, etc. UNLESS church requires such travel as an integrity measure
38. Complying With Federal payroll tax reporting obligations.. THINGS NOT TO REPORT AS SALARY FOR MINISTERS:
* Fair rental value of * Housing Allowance
parsonage * Contributions to Retirement Plans
* Expenses reimbursed (Under Salary Reduction Agreement
under accountable plan approved by the church)
* Travel expenses * Items purchased by the church for the
in accordance with IRS minister to accomplish his task as
guidelines minister of the church
CONSULT IRS OR CLERGY TAX LAW GUIDES IF YOU HAVE QUESTIONS. Tar River Baptist Association should have the up-to-date information that will be of help to its member churches.
39. Complying With Federal payroll tax reporting obligations.. STEP ELEVEN: Prepare a Form 1099-MISC for every self-employed person receiving non-employee compensation of $600 or more.
Like the W2, this should be issued BEFORE February 1
Persons that receive 1099s are NOT eligible to participate in the Church Annuity Plan.
Churches should get contact information and SS number to complete 1099 for every person that receives compensation for services rendered to the church (revival speaker, pulpit supply, guest musicians, etc.)
40. Some additional helps to keep you in compliance.. NEED HELP COMPLETING A FORM: Call the centralized IRS site for questions about their forms. Their number is 1-304-263-8700 (M-F 8:30 4:30 EST). TRBA might also be able to offer some help to you.
FORM I-9: EVERY employer in the United States must complete this form to confirm the identity of all new employees. All employees since November 6, 1986 should have this on file.
Annual Certification of racial nondiscrimination: Churches that operate, supervise, or control a private school must file this form each year with the IRS. This includes a preschool operation.
41.
Charitable Giving
42. Lets Discuss a Scenario The Treasurer receives a donation to the church w/ a note attached.
The donor wishes to remain anonymous
The check is designated for use at the discretion of the pastor for evangelism
The Questions related to the above:
Can the pastor only authorize these funds or does this go into the general fund?
If it states to be used for evangelism, does the church really have to use it for that purpose?
3. How would a church policy addressing designated funds help in this scenario?
43. Lets Discuss. For a contribution to be tax deductible, the church must maintain control. In other words, if it is NOT the policy of the church to allow the Pastor to have general oversight of the distribution of funds, then the designated gift is a way to get around the budget of the church and the person maintains control of his money.
I would honor the anonymous nature of the gift as much as possible, but I would discourage common use of this tactic.
Anything at the discretion of the pastor should be counted as income to the pastor as he has control of it. This would be particularly true if the person giving the gift gets a tax credit from the church.
Should it go to the general fund? If the church does not have a designated evangelism fund, the church needs to vote to accept the contribution as a bona fide contribution. The church should have a policy that states money designated and not use for the purpose given will go to the general fund and allow the donor to take it back in a reasonable amount of time if he dies not agree with that policy.
Church policy and procedures clarify things!
44. Some additional helps to keep you in compliance.. Charitable contribution substantiation rules: There are two important rules with regards to substantiation of charitable gifts:
1. IF THE GIFT IS OVER $250 the donor must receive written acknowledgement from the church that satisfies the following requirements:
* Receipt must be in writing
* Receipt must identify the donor by name
* For non-cash contributions valued over $250, the receipt must include a description of the property. NO VALUE NEEDS TO BE STATED
45. Some additional helps to keep you in compliance..
* The receipt must state whether the church provided any goods or services in return for the contributions and if so, an estimate of their value
* If the church provides intangible religious benefits, then the receipt must contain a statement to that effect
* The written receipt must be received by the date the donor file his tax return (or extensions)
46. Some additional helps to keep you in compliance.. If the gift is a Quid pro quo contribution of more than $75 ( a payment that is partly contribution and partly payment for goods and services), the church must provide a written statement to the donor that satisfies two conditions:
* Must inform the donor the amount that is tax-deductible is limited to the excess of the amount of money (or value of property) over the value of any goods and services provided by the church
47. Some additional helps to keep you in compliance.. The statement must provide the donor with a good faith estimate of the value of the goods or services furnished to the donor
NOTE: All designated contributions are NOT necessarily tax-deductible to the donor.
48. Not all designated gifts are considered tax deductible Due to abuse by some, the IRS has established some basic guidelines related to designated giving and receipts for charitable gifts. As a general rule, anything you give with a designation that it MUST be used in a certain manner and for which you can have returned if not used in that manner, is not considered deductible for you still have control of its use.
49. One final rule of thumb for charitable giving If someone receives CREDIT for a contribution (even a love offering), the IRS requires substantiation.
If a staff member receives a love offering from the church for which members have received a contribution credit (this would include gifts and trips), then the treasurer MUST include this on the staff members W2 as income.
50. ODDS AND ENDS ABOUT CHARITABLE GIVING Keep tax records 7 years (List provided for other timelines for record keeping)
Hours, services, volunteerism is NOT a legal contribution
Money counters should not be from the same family/household
Cancelled checks are not proof of contributions
A person that gets the money; counts the money; deposits the money, etc. SHOULD NOT SIGN CHECKS
Two signatures should be on church checks
51. A Suggested Procedure For Sunday Offerings Count and verify loose change and cash contributions
Do NOT open envelopes
Place bag in night deposit at bank
On Monday, financial secretary gets bag, counts money, and makes records of contributions from envelopes
Prepare deposit slip and take to bank
Get contribution records to contributors in a timely manner
52. Reclamation Of N.C. Sales Tax Churches can claim refunds for NC Sales taxes paid. Forms are available
by calling 1-877-252-3052. Listed below are items for which churches
can NOT receive a refund:
Tax paid on the purchase, lease, or rental of motor vehicles
State sales tax on electricity, natural gas, and telephone service
Local occupancy taxes on hotel bills and restaurant (prepared food) taxes
Scrap tire disposal and white goods tax
REIMBURSEMENTS MADE TO EMPLOYEES OR OTHER INDIVIDUALS FOR SALES TAX PAID DIRECTLY BY THE EMPLOYEE OR INDIVIDUAL
53. Planning Financial Support For Church Staff The church has the responsibility of being a good employer. Staff/church policies and procedures, personnel handbooks, deliberate planning to address financial needs of the staff ALL contribute to a better work environment.
54. Forms, workbooks, sample policies and procedures, etc. are available to the church through the Tar River Baptist Association or the Baptist State Convention of North Carolina or their websites.
55. Tar Rivers Website is www.tarriverba.com The Baptist State Conventions website is www.ncbaptist.org
56. Six steps to financial support planning * Determine the needs
* Establish written support policies
* Provide for ministry-related expenses
* Provide employee benefits
* Determine personal income
* Complete a financial support worksheet
57. Determining The Need Ask each church employee to complete a Financial Support Review (copies available). This will help you determine if the church is adequately meeting both the churchs and the employees needs. This tool will enable the church to more effectively plan for this years staff support and the ministry needs of the church.
58. Financial support review Forms are available at TRBA.
The church should ask each staff member to complete this form and return to the committee for their review.
The committee should determine if any adjustments should be made for that employee.
59. Financial support review The following areas need to be reviewed:
1. Mileage driven the previous year for church business.
2. Any foreseen major changes in mileage for the upcoming year.
The church should examine current and projected compensation at the IRS approved rates.
60. Financial support review 3. How much money was spent by the staff member in travel expenses to participate in church and denominational conventions and conferences? This would include lodging, food, commercial transportation, parking fees, etc.
4. Are their anticipated changes in convention, conference, education plans for next year?
The church should explore what expenses they will reimburse for such events.
61. Financial support review 5. How much money was spent by the staff member on materials such as books, periodicals, subscriptions, tapes, etc. in preparation for sermons, studies, presentations, and other things related to the ministry of the staff member?
6. Are their any special studies, promotions, activities planned by the church or denomination that will require additional purchases in the upcoming year?
The church should explore what expenses they will reimburse for such materials.
62. Financial support review 7. How much money was spent by the staff member on professional development conferences, education, workshops, etc.- to improve the ministers ability to minister to the church?
The church should determine how much they will reimburse?
8. How much money was spent by the staff member to entertain church groups, prospects, visiting evangelists, and other guests of the church in their home or a restaurant?
The church should determine how much they will reimburse to offset this expense to the staff member.
63. Thus far, we have just reviewed what it cost the church staff member TO BE YOUR CHURCH STAFF MEMBER. Now we need to look at the benefits the church will provide and the personal income the staff member can use as his/her personal income.
64. Protection Benefits
The church should do all it can to protect the staff member and his/her family. Perhaps the church can not do all it needs to do, but each year it needs to take additional steps to protect the staff member!
65. Protection Benefits There are several things the church needs to know about its staff members so ask!
1. Does the staff member have health insurance?
2. What is the cost to the family?
3. Will the cost increase for next year?
The church should determine how much it can do to offer this as a benefit for the staff member. If not fully, it can be reimbursed and/or a salary reduction agreement.
66. Financial support review 4. Does the staff member have life insurance? What is the cost? Can the church cover this as a benefit if not already a benefit (remember anything over the $50,000 premium will have to count as income to the staff member).
5. Does the staff member have disability insurance? What is the cost? Can the church include this as a benefit?
6. Does the staff member make contributions to GuideStones Retirement Program? (PLEASE NOTE: It is the opinion of your presenter that the staff member should participate in the GuideStone Retirement. There are certain benefits that AUTOMATICALLY come to the staff member that serve as a protection to the staff member and to the church as a result of the staff member's involvement.)
67. A Few Words About Special Benefits For GuideStones Retirement Participants If your church contributes $420 per staff member to any plan to the Cooperative Program of the Baptist State Convention of North Carolina, and contributions are made on behalf of the staff member (by the staff member or the church), then the staff member AUTOMATICALLY has certain protection benefits IN ADDITION TO any other protection benefits they might have. (PLEASE NOTE: This benefit is available to ANY minister (including music DIRECTOR) and to SUPPORT STAFF and daycare workers that work at least 20 hours per week (ministry positions have no minimum number of hours to work).
EVERY CHURCH SHOULD MAKE CERTAIN THAT MONTHLY CONTRIBUTIONS (AND I SAY AGAIN MONTHLY) SO THAT STAFF MEMBERS WILL HAVE THIS FREE BENEFIT!!!!!!!
68. More Words About Special Benefits For Annuity Board Retirement Participants Treasurers should make certain payments are made on all staff members behalf on a MONTHLY basis. Benefits are based on twelve months of consecutive (not catch up) contributions and participants would receive a pro rated benefit if payments were not made MONTHLY.
69. Yet----A Few More Words About Special Benefits For GuideStones Retirement Participants Eligible participants in the GuideStone Retirement System have the following AUTOMATIC benefits as a result of a partnership it the Baptist State Convention of North Carolina:
Protection Benefits: For contributions of $1 a month (of course, it should be more):
Disability Income Benefit of up to $500/month
Survivor Protection Benefit (based on age) of up to $100,000 and not less than $10,000 for those who die before retirement (Contributing interims are not considered retired)
70. Yet----A Few More Words About Special Benefits For GuideStones Retirement Participants Investment Benefit: For contributions of $52 - $105 the Baptist State Convention of North Carolina will contribute $1for every $3 the participant contributes.
Churches are encouraged to contribute 10% of staff members direct pay. The staff member is encouraged to contribute 5%.
71. Now---we move into the personal or direct income of the minister. That is, the money that is available to the staff member to support the family/personal expenses.
72. Personal income. 1. How much was the salary for the staff member last year?
2. Did the staff member receive a COLA or merit raise last year?
3. What was the housing allowance or value of the parsonage last year?
4. How much SECA taxes were paid by the staff member last year?
5. How much did the church provide last year for SS Offset?
Upon review of the above, the church should determine what adjustments need to be made in the next budget cycle for the staff member.
73. STEP 2: Establish written financial support policies--------Every church should do all it can to cut down on the potential for conflict in the church. Written policies clarify intentions and reduce the potential for misunderstandings.
74. Written policies should include. Ministry related expenses: Should clearly state what the church considers allowable business expenses; staff member record keeping expectations; types of expenses to be reimbursed and reimbursement rates, etc.
Employee benefits: Should define levels of coverage the church will provide for insurances; retirement contributions by the church; educational expenses: SS Offset, etc.
75. Written policies should include. Personal Income: This is the direct income the staff member receives (housing allowance and taxable salary).
OTHER Personnel policies: There are several other policies the church should consider for its employees, including the following:
* Vacation * Sick leave
* Sabbatical leave * Hiring issues
* Employee classifications * Work hours
* Pay periods * Church expectations in call backs from conferences/vacations
76.
????Any Specific Questions????
