This blog posts answers to questions given to us by ministers and others serving in Christian ministries advancing the gospel of Jesus Christ. It also discusses other financial topics that those in gospel ministries face. We trust the information provided can be helpful to you.
Question: A church treasurer recently was handed a Form 4361 by his church's youth minister. It appeared to have been altered. Can the treasurer contact the IRS to get verification of the approval?
Regardless of the youth pastor’s success or failure to gain an exemption from self-employment (SE) tax on ministerial earnings (by virtue of his successful Form 4361 application), the church’s treatment of his wages is unaffected. By definition, a minister is a dual status employee. This means that he is considered self-employed for purposes of SE tax. He is not subject to nor eligible for FICA tax withholding and matching by the church. If he fails to pay his own SE tax on his personal return and it is determined by the IRS that he has no Form 4361 approval, he will be facing a very large tax penalty and interest assessment.
Our website provides an aid to preparing a church's Forms W-2. They are prepared in exactly the same way whether or not the pastor has opted out of SE tax.Select the Microsoft PowerPoint presentation entitled Church and Christian Ministry Compensation Concepts. by following the link provided here.
In one respect, our response could be, “don’t worry about it.” In another respect, our response could be, “Your youth pastor is making a terrible mistake. Whether in ignorance or in malice we cannot tell.”
Regarding a direct contact with the IRS to get verification of the approval, the IRS will not disclose private taxpayer information without authorization from the taxpayer.
If a minister rents his principal residence, but he performs services (mowing the lawn, repairing the roof, etc.) in lieu of rent, can he still qualify the rent amount for a housing allowance tax benefit?
Of course, bartering income is taxable. The Internal Revenue Code interprets that above situation as follows: tenant/minister receives taxable income for the fair market value of the services he provides, andtenant/minster pays landlord for renal of residence.
The minister in this case reports taxable income for services provided in lieu of rent. It is also likely subject to self-employment tax. He may then claim as qualifying housing allowance expense equal to the amount he "pays" for rent of his personal residence. Essentially, there is no difference than if the minister and his landlord simply traded checks.
A church group went on a two-week mission trip, and a few of the members stayed an additional two weeks for personal time. Will the members who stayed the two additional weeks be able to deduct expenses from the trip?
IRS Pub 526 covers the
topic of Charitable Contributions and, more specifically, travel expenses
associated with charitable trips. The
publication states that travel expenses will be deductible “if there is no significant element
of personal pleasure, recreation, or vacation in the travel.” The publication
also states, “The deduction for travel expenses won't be denied simply because
you enjoy providing services to the charitable organization. Even if you enjoy
the trip, you can take a charitable contribution deduction for your travel
expenses if you are on duty in a genuine and substantial sense throughout the
trip. However, if you have only nominal duties, or if for significant parts of
the trip you don't have any duties, you can't deduct you…
403(b) contributions and the subsequent match be based on the pastor's total
income from the church (including housing allowance) or just from the salary minus
to Richard R. Hammar, J.D., LL.M., CPA, in his book 2015 Church & Clergy Tax Guide, “Section 107 of the tax code
specifies that a minister’s housing allowance (or the annual rental value of a parsonage)
is not included in the minister’s
gross income for income tax reporting purposes. Therefore, it would appear that
the definition of includible compensation for purposes of computing the limit
on annual additions to a 403(b) plan would not
include the portion of a minister’s housing allowance that is excludable from