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.
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MinistryCPA Special Topic: When Can I Start Receiving Social Security Benefits?
Question: When can I start to receive Social Security benefits? Answer:
The average individual is eligibleto begin receiving partial Social Security benefits as early as age 62. However, the Social Security Administration (SSA) has defined full retirement age (FRA), the age at which an individual is eligible to receive his or her full benefit, according to the table below:
An individual may also elect to delay collecting benefits to age 70 in order to receive increased benefits. (For the purposes of this blog post, we will consider only an "average" individual; widows, widowers, disabled individuals, and others are subject to different guidelines).
An individual who elects to start receiving benefits between age 62 and FRA may be subject to two separate penalties. First, monthly benefits may be reduced by as much as 30 percent for those who claim at 62. Second, earnings may be subject to an earnings test, and benefits will be reduced by $1 for every $2 earned past the cap set by the SSA ($15,120 in 2013). Once FRA has been reached, the benefit will be increased to make up for reductions in SS benefits due to excess earnings above the threshold. However, the reduction for collecting earlier than FRA will continue for as long as benefits are collected.
An individual who begins to receive benefits at or after FRA will not be subject to the earnings test, and will receive his or her full monthly benefit with no penalties. Additionally, individuals who delay the start of benefits past FRA can earn delayed retirement credits (DRC) of 8% per year up to age 70. Depending on the length of the delay, this strategy can result in a monthly benefit approximately 30% above FRA benefits.
Based on life expectancy and savings other than Social Security, each option will provide advantages for different individuals. Those who start collecting benefits early will receive a reduced monthly benefit, but will enjoy the income much earlier than those who wait until FRA or after. Additionally, the reduction in benefits will continue for the life of the recipient. Those who delay past FRA will receive a higher monthly benefit, despite waiting longer for the income.
One easy method of comparison involves break-even points. Those who begin collecting benefits at FRA provide the "baseline" for comparison of the total benefit amount. An individual who begins collecting benefits at age 62 will break even with that total amount at age 77. Essentially, this means that someone who lives beyond age 77 will receive greater total lifetime benefits if they wait to start collecting benefits until FRA. One who begins collecting at age 70, earning a higher monthly benefit, will break even with the baseline total amount at age 81. (The Adviser's Guide to Social Security, 2nd Edition, by Theodore J. Sarenski, CPA, PFS, CFP, and Elaine Floyd, CFP. AICPA, 2013. Page 21)
These general guidelines provide a framework for decisions about when to begin collecting benefits, but each individual's situation is different. Other factors, such as life expectancy, other sources of income, and tax consequences should be taken into account when deciding on the timing of benefits.
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