Question:
A church allows its assistant pastor to live in the parsonage in lieu of giving him a cash salary. Because his salary would be less than the rental value of the property, he pays the difference to the church as rent each month. What is the proper tax treatment to the pastor of the parsonage in lieu of cash compensation? Will the church have to begin paying property taxes?
Answer:
The value of the partially rent-free housing in lieu of salary is subject to SE tax, but not income tax for the minister. Additionally, because he is a church employee, the property will not be placed back on the real estate tax roll, so the church will continue to enjoy its property tax exemption.
For further information about property tax exemptions for church property, type "property tax" into this blog's search window.
Tuesday, June 18
Parsonage Rental to Church Employee at Below Fair Rental Value
Question:
A church has an unoccupied parsonage which it would like to rent at below market value to a non-ministerial employee of the church. How should the church treat this arrangement for tax purposes?
Answer:
As long as this arrangement is not a condition of employment, the difference between market value and the amount of the rental payments must be reported as compensation on Form W-2, subject to income and FICA taxes. This does not qualify as a housing allowance because the employee is not a minister.
If the employee were required by the church to live on the premises, the church could rent the parsonage to him at below market value (or provide it free of cost) with no tax consequences. For example, if the church custodian is required to live on the premises and be on call around the clock, housing provided by the church would not be considered additional income.
According to IRS Publication 525, lodging is nontaxable to an employee if it is "a. Furnished on the business premises of your employer, b. Furnished for the convenience of your employer, and c. A condition of your employment. (You must accept it in order to be able to properly perform your duties.)"
A church has an unoccupied parsonage which it would like to rent at below market value to a non-ministerial employee of the church. How should the church treat this arrangement for tax purposes?
Answer:
As long as this arrangement is not a condition of employment, the difference between market value and the amount of the rental payments must be reported as compensation on Form W-2, subject to income and FICA taxes. This does not qualify as a housing allowance because the employee is not a minister.
If the employee were required by the church to live on the premises, the church could rent the parsonage to him at below market value (or provide it free of cost) with no tax consequences. For example, if the church custodian is required to live on the premises and be on call around the clock, housing provided by the church would not be considered additional income.
According to IRS Publication 525, lodging is nontaxable to an employee if it is "a. Furnished on the business premises of your employer, b. Furnished for the convenience of your employer, and c. A condition of your employment. (You must accept it in order to be able to properly perform your duties.)"
Monday, June 3
HRAs and Health Insurance Premiums Credit
Question:
Further, many of these same churches have also qualified for the Credit for Small Employer Health Insurance Premiums. More information on this credit is also available within the following May 2011 blog post.
What should a church
do to establish a Health Reimbursement Arrangement to pay for the pastor's
personal health insurance premiums?
Answer:
In the current health insurance climate of high premiums and reduced benefits, many churches have decided to radically change their benefit packages. One of those solutions has been to establish a Health Reimbursement Arrangement (HRA) for their pastor. The following link to our MinistryCPA.org website seeks to provide helpful information.
In the current health insurance climate of high premiums and reduced benefits, many churches have decided to radically change their benefit packages. One of those solutions has been to establish a Health Reimbursement Arrangement (HRA) for their pastor. The following link to our MinistryCPA.org website seeks to provide helpful information.
Further, many of these same churches have also qualified for the Credit for Small Employer Health Insurance Premiums. More information on this credit is also available within the following May 2011 blog post.
Direct Payment of Pastor's Housing Expenses
Question:
A church pays the rent to its pastor's landlord each month. Do the rental payments qualify for housing allowance? Are the utilities also considered housing allowance if paid directly by the church?
Answer:
Generally, it is irrelevant whether a church pays its minister’s housing expenses directly or designates a portion of his compensation as housing allowance for his personal payment of these expenses. We say “generally” because at least one state (Pennsylvania) permits only direct payment of housing expenses in order to enjoy tax free status.
A church pays the rent to its pastor's landlord each month. Do the rental payments qualify for housing allowance? Are the utilities also considered housing allowance if paid directly by the church?
Answer:
Generally, it is irrelevant whether a church pays its minister’s housing expenses directly or designates a portion of his compensation as housing allowance for his personal payment of these expenses. We say “generally” because at least one state (Pennsylvania) permits only direct payment of housing expenses in order to enjoy tax free status.
Tuesday, April 23
Correcting a Form 1099-MISC
Question:
How does a church correct a previous year's Form 1099-MISC which erroneously listed housing allowance in box 7 "Non-Employee Compensation?"
Answer:
Unlike the Form W-2, there is no separate form to correct an erroneously distributed Form 1099-MISC. Instead, a Form 1099-MISC should be prepared reporting the correct amounts, and the "Corrected" box should be checked on the top of the form.
As for the housing allowance, simply reduce the amount in box 7 by the amount of designated housing allowance, up to and including the full amount originally reported in box 7. Be aware that this may result in a zero being entered in box 7 if the full amount was designated as housing allowance.
How does a church correct a previous year's Form 1099-MISC which erroneously listed housing allowance in box 7 "Non-Employee Compensation?"
Answer:
Unlike the Form W-2, there is no separate form to correct an erroneously distributed Form 1099-MISC. Instead, a Form 1099-MISC should be prepared reporting the correct amounts, and the "Corrected" box should be checked on the top of the form.
As for the housing allowance, simply reduce the amount in box 7 by the amount of designated housing allowance, up to and including the full amount originally reported in box 7. Be aware that this may result in a zero being entered in box 7 if the full amount was designated as housing allowance.
Subscribe to:
Posts (Atom)
