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.
A church provides its minister a housing allowance, but for other purposes it believes that it must report the full amount of compensation (including the non-taxable housing allowance portion) on Form 1099-MISC (in order to demonstrate the full earnings of the minister). If the church reports his compensation,including the housing allowance, on Form 1099-MISC as taxable income, will he be able to deduct his housing expenses somewhere else on the Form 1040?
This questions brings up a couple of issues. First, most ministers are properly classified as employees who receive Form W-2, not as independent contractors who receive Form 1099-MISC. On Form W-2, Box 1 for taxable compensation is reduced reflecting the church's designation of a portion of his pay as non-taxable. Then in Box 14, it typically reports as a memorandum item his additional non-taxable, housing allowance compensation. In the situation addressed in the question, this Form W-2 reporting may or may not a…
A church rented space from another church last year. Should it request a completed Form W-9 and issue Form 1099-MISC?
We have written similar blog posts on this topic in the past (listed below), but we figured it was a good time for a review.
Payments from one 501(c)(3) organization to another 501(c)(3) organization are not subject to Form 1099-MISC reporting. The 2015 Instructions for Form 1099-MISC state that "payments to a tax-exempt organization" are exempt from reporting a Form 1099-MISC.
The following are typical examples of payments of $600 or more by a church which are subject to reporting a Form 1099-MISC: Rent paid to an individual (non-corporation)Payments for services rendered by individuals who are not employees (e.g. janitorial service, facilities, snow removal, guest speakers)Support sent directly to missionariesHere are some similar blog posts that we have written in the past:
Question: A church gave a wedding gift of $1000 to a couple who are church members. No goods or services were provided by the couple in exchange for the gift. Is a Form 1099-MISC required? Answer: In the following answer, we assume that the couple are not employees of the church from whom the gift could not be viewed as compensation for their services. Also, the amount seems to be small enough to avoid any concerns of "private inurement."
Accordingly, no Form 1099-MISC is required. According to the 2017 IRS Instructions for Form 1099-MISC a Form 1099-MISC is only required for payment of goods or services. The requirements are as follows: "File Form 1099-MISC, Miscellaneous Income, for each
person to whom you have paid during the year: At least $10 in royalties (see the instructions for box 2) or
broker payments in lieu of dividends or tax-exempt interest
(see the instructions for box 8); At least $600 in: 1. Rents (box 1); 2. Services performed by someone who is not your