Question:
A church led by a "volunteer" pastor wishes to give him a monetary gift for Christmas. Will the church need to issue a Form 1099-MISC? Is the answer different depending on the amount?
Answer:
The payment will be considered as compensation for services rendered--the church is acting corporately in compensating a minister who serves it. However, there are some options.
First, the amount can be designated (prior to payment) as housing allowance. This removes the federal income tax consequence to the extent of his actual housing expenses (and the fair rental value of his home).
Second, while the compensation is subject to the 15.3 percent self-employment (SE) tax, to the extent the minister has unreimbursed ministry expenses, he can reduce his SE income. If his net self-employment income is less than $400, he will owe no SE tax.
With so little income, it is unlikely that the IRS would classify him as a Form W-2 employee. Therefore, if the non-housing allowance portion of the payment is $600 or more, Form 1099-MISC should be issued. The minister is responsible to report the income correctly regardless of the church's obligation to issue a statement of earnings.
Monday, November 21
Sunday, November 6
Church Donor Designations to Foreign Ministries
Question:
Some members and non-members of a church direct funds to a ministry overseas, partly because they want to get a tax deduction by giving it through the church versus giving to the overseas ministry directly. The church has elected to include the foreign ministry in its missions budget, albeit with a much smaller amount than what is being designated by other people. Does this pose any problems that the church should be aware of?
Answer:
With the church as the organization overseeing the support of the overseas' work (it obviously endorses it by virtue of its own giving), it's almost certainly better to contribute in this manner than by individual donors trying to make wire transfers (I suppose) to a foreign ministry.
In my experience, the typical concern the church must have is that it does not become a conduit for the otherwise non-charitable obligations of individuals who are not really donors.
Let me illustrate. Imagine that a parent is obligated to pay on the college loans of a child who because of his or her mission activity has little income to pay the loans. By "donating" to the church the parent gets a tax deduction. Yes, the income is taxable to the child, but if he or she is a low-income (or, more likely, a high deduction) taxpayer then the "gift" may produce little or no tax to the child. The church has unwittingly become a conduit for the parent's otherwise personal obligation. That's why I believe it is important that churches carefully monitor excessive contributions to funds that benefit their family members.
Some members and non-members of a church direct funds to a ministry overseas, partly because they want to get a tax deduction by giving it through the church versus giving to the overseas ministry directly. The church has elected to include the foreign ministry in its missions budget, albeit with a much smaller amount than what is being designated by other people. Does this pose any problems that the church should be aware of?
Answer:
With the church as the organization overseeing the support of the overseas' work (it obviously endorses it by virtue of its own giving), it's almost certainly better to contribute in this manner than by individual donors trying to make wire transfers (I suppose) to a foreign ministry.
In my experience, the typical concern the church must have is that it does not become a conduit for the otherwise non-charitable obligations of individuals who are not really donors.
Let me illustrate. Imagine that a parent is obligated to pay on the college loans of a child who because of his or her mission activity has little income to pay the loans. By "donating" to the church the parent gets a tax deduction. Yes, the income is taxable to the child, but if he or she is a low-income (or, more likely, a high deduction) taxpayer then the "gift" may produce little or no tax to the child. The church has unwittingly become a conduit for the parent's otherwise personal obligation. That's why I believe it is important that churches carefully monitor excessive contributions to funds that benefit their family members.
Saturday, November 5
Example of Independent Contractor vs. Employee Decision
Question:
A church's person who cleans the church is paid a fixed sum each month. He works without direction (although direct could be given) and on his own schedule (within limits, of course). The church provides supplies. Is he an employee or contractor?
The same individual also does the church's lawn care for which he is paid each time that he performs the service. He provides his own equipment. The schedule for the service is "when it needs it" and as such is not necessarily regular, especially in the winter. Is he an employee or a contractor?
Answer:
Each church's situation is unique. That's why the general guidelines and links that I provided in my September 21, 2011, blog posting can be helpful.
http://ministrycpa.blogspot.com/2011/09/church-employee-or-independent.html
A church's person who cleans the church is paid a fixed sum each month. He works without direction (although direct could be given) and on his own schedule (within limits, of course). The church provides supplies. Is he an employee or contractor?
The same individual also does the church's lawn care for which he is paid each time that he performs the service. He provides his own equipment. The schedule for the service is "when it needs it" and as such is not necessarily regular, especially in the winter. Is he an employee or a contractor?
Answer:
Each church's situation is unique. That's why the general guidelines and links that I provided in my September 21, 2011, blog posting can be helpful.
http://ministrycpa.blogspot.com/2011/09/church-employee-or-independent.html
Minister as a Volunteer--No Housing Allowance Benefit
Question:
A pastor works a full time job and thus does not take a salary from the church. Since he owns his own home, can he take a tax deduction for housing allowance and travel expenses from his ministry even though his income is actually from another job?
Answer:
Unfortunately, a housing allowance is only based on a designation of compensation paid by the church. No housing allowance is permitted in his case. Essentially, the minister is a volunteer. This does mean that his mileage on behalf of the church is deductible as an itemized deduction (at the charitable rate) and his out-of-pocket costs as a volunteer may be written off (Schedule A).
A pastor works a full time job and thus does not take a salary from the church. Since he owns his own home, can he take a tax deduction for housing allowance and travel expenses from his ministry even though his income is actually from another job?
Answer:
Unfortunately, a housing allowance is only based on a designation of compensation paid by the church. No housing allowance is permitted in his case. Essentially, the minister is a volunteer. This does mean that his mileage on behalf of the church is deductible as an itemized deduction (at the charitable rate) and his out-of-pocket costs as a volunteer may be written off (Schedule A).
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