September 18, 2009

Payments to Former Pastor

Question:

A church sets up a fund to pay a former pastor's nursing home, housing and other expenses. He and his wife are current members of the church. Is the church required to issue him a Form 1099-MISC (or Form W-2)? Is there a limit as to how much he can receive?

Answer:

Situations such as this are common. Typically, the church has been unable to compensate the former minister as well as it would have wished and now intends to provide some current support to address this undercompensation. Such payments to the minister or on his behalf are taxable as compensation. The church can designate a portion to housing allowance and the minister may elect Internal Revenue Code section 403(b) elective deferrals which may reduce the tax bite.

There is no limit to the amount other than possible Social Security retirement limitations on those who have not reached full retirement age (between age 65 and 67 or so).

Another possible motivation for these payments produces an entirely different tax effect. Just as any member of a congregation may have needs addressed by the church's benevolent fund, a minister who is a current member may receive non-taxable benevolent gifts. Such gifts are not motivated by past undercompensation, but by compassion for the needs of members as funds are made available to cover them.

The IRS expects the church to determine the tax reporting (or absence of it) based on the full facts and circumstances of the case.

1 comment:

  1. This is a common situation. I found that fairly surprising. But it is very good that a flock is taking care of a former pastor who retired due to health or age. Bravo.

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