December 01, 2016

New Due Date for Missionary FBARs

Notice:

Individuals holding or acting as signatories on certain foreign bank accounts must file annual disclosures with the IRS. This includes a number of missionary clients of MinistryCPA. As of the 2017 filing season (year ended December 31, 2016), FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) will be due on April 15.

According to Act Sec. 2006(b)(11) of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015,

"The due date of FinCEN Report 114 (relating to Report of Foreign Bank and Financial Accounts) shall be April 15 with a maximum extension for a 6-month period ending on October 15 and with provision for an extension under rules similar to the rules in Treas. Reg. section 1.6081–5. For any taxpayer required to file such Form for the first time, any penalty for failure to timely request for, or file, an extension, may be waived by the Secretary."

November 29, 2016

Earned Income Credit for Foreign Missionaries

Question:

A missionary couple (and their children) lives overseas for over half the year, while maintaining a home in the U.S.  Both are US citizens.  Do they qualify for the Earned Income Credit?

Answer: 

First, there are three potential credits that could be affected by residency status.
  • Earned Income Credit (EIC) (refundable) - See IRS Publication 596
  • Child Tax Credit (non-refundable) - Up to $1,000 per qualifying child
  • Additional Child Tax Credit (refundable) - This credit is for certain individuals who get less than the full amount of the child tax credit.
If the taxpayer did not live with his child in the United States for at least six months of the tax year, he cannot claim the EIC.
IRS Publication 596

But a taxpayer may be able to claim the Child Tax Credit or the Additional Child Tax Credit even though he did not live in the United States at least six months of the current tax year.

It is often advantageous for a foreign missionary to claim a Foreign Earned Income Exclusion using Form 2555, thereby excluding some or all of his earned income from taxation. IRS Publication 596 and Publication 972 state that the Additional Child Tax Credit cannot be claimed if one files Form 2555 or Form 2555-EZ. 

For a missionary paying foreign taxes in a foreign country, he may reduce or eliminate his income tax by claiming the Foreign Tax Credit instead of the Foreign Earned Income Exclusion. With the combination of a minister's housing allowance, education credits, and the Form 1116 Foreign Tax Credit, a missionary may qualify for the Additional Child Tax Credit and be able to reduce or eliminate his income tax.



November 16, 2016

Camp Worker and Overtime

Question:

One of a camp’s fulltime maintenance men is paid $600 per week ($31,200 per year). Some weeks he puts in less than 40 hours. But during camping season, he easily works 60 to 70 hours a week. Is the camp required to pay him overtime?

Answer:

As a general rule, the camp is not required to pay overtime if the employee meets two requirements.
  1. The employee meets the salary test and is paid on a salary basis of at least $913 per week (or $47,476 per year),* and 
  2. The employee meets the duties test of the executive, administrative, professional, or other exemption.**
Because the maintenance man is paid $600 per week, he does not meet the salary test (No. 1 above). The camp is then required to do one of two options:
  • Option A. Increase the employee’s weekly salary, or
  • Option B. Reclassify the employee to a nonexempt employee, which means the employee will be paid on an hourly basis. 
Option A is the simplest. The camp can just increase the maintenance man’s weekly salary from $600 to $913 per week. Because the employee’s compensation would increase by $16,276 ($47,476 - $31,200), this would likely create havoc on the nonprofit’s budget.

As a result, Option B should be implemented. This means that the employee will be paid on an hourly basis. The camp should require the employee to record all his hours worked each day. As an example, the camp could pay the employee $10 per hour. If the employee works 30 hours in one week, the employee would receive gross wages of $300 ($10 X 30 hours) for that week. But if the employee works 70 hours, the employee receives time-and-a-half of $15 ($10 X 1.5) for anything more than 40 hours. Hence, the employee is paid $850 in total gross wages for the week.***

Option B would also create significant budget concerns depending on the employee’s regular hourly rate. If this is the case, the employer could limit the weekly hours of the maintenance man and hire an additional employee.

Because each employment situation varies, we suggest the camp seek appropriate legal counsel. In addition, state minimum wage and overtime laws need to be taken into consideration.

*The Department of Labor announced the final rule updating the overtime regulations on May 18, 2016, with an effective date of December 1, 2016. The DOL final rule is the result of President Obama’s executive order in 2014.
**See the DOL’s Fact Sheet #17A for more information on exemptions, although the fact sheet has not yet been updated to reflect the $913 per week salary requirement.
***$400 ($10 X 40 hours) + $450 ($15 X 30 hours) = $850

November 01, 2016

Heath Care Sharing Ministries and the SE Insurance Deduction

Question:

Can payments made to a health care sharing ministry (e.g., Samaritan Ministries, Christian Healthcare Ministries) which are exempt from the Affordable Care Act be deducted from income as a self-employed (SE) insurance deduction?

Answer:

First, to be technical, "health care sharing ministries" (IRS exemption D) provide participants an exception from Shared Responsibility Payments (ACA penalties), but don't connote other tax benefits.

Second, a health care share ministry does not qualify as health insurance. One does not pay what the IRS considers to be premiums, but instead shares the health expenses of others. And according to IRS Pub 535, in order for self-employed individuals to qualify for a SE insurance deductions they must be to pay premiums for qualifying health insurance. 


Form 944 or 941 Filing for Churches

Question: 

A new church filed for an employer identification number (EIN) recently. It received notification from the IRS about the EIN, stating that the church must file Form 944 by the following January deadline. The church has no non-ministerial staff members. Since income tax withholding is elective by ministers and none of the pastors has elected to request non-mandatory withholding is the church required to file Form 944 annually?

Also, a quarterly Form 941 (rather than an annual Form 944) is required of some employers. Which IRS form, if any, should be filed?

Answer:

According to IRS Section 1402(c) and 3121(c), ministers are not subject to mandatory income tax withholding. Unless one or more ministerial employees request non-mandatory withholding, church employers with only ministerial employees do not need to file Form 941 or Form 944. 
The IRS Ministers Audit Technique Guide explains in further detail a minister's treatments for social security, Medicare tax, Federal Insurance Compensation Act taxes, and income tax withholding. 

Form 941 or 944 must be filed when non-ministerial employees are compensated or ministers request withholding.

When can a church file the annual Form 944 rather than filing Form 941 each quarter?
  • The IRS may permit the annual filing of Form 944 for employers who have less than $1,000 of withholding taxes to report during the year (only if granted permission by the IRS through correspondence). Once the employer has more than $1,000 to report, the employer must file the quarterly Form 941.
  • Regardless, if the church has non-ministerial employees or has non-mandatory withholding from its minister(s) it must file either Form 941 or, if approved, Form 944.
Here is an excerpt from the Instructions for Form 944: 

Who Must File Form 944?

In general, if the IRS has notified you to file Form 944, you must file Form 944 instead of Forms 941, 941-SS, or 941-PR to report the following amounts.
  • Wages you have paid 
  • Tips your employees have received 
  • Federal income tax you withheld 
  • Both the employer's and the employee's share of social security and Medicare taxes 
  • Additional Medicare Tax withheld from employees 
  • Current year's adjustments to social security and Medicare taxes for fractions of cents, sick pay, tips, and group-term life insurance.