October 31, 2014

Can You Claim a Housing Allowance for Two Homes?

Question: 

A minister recently accepted a call to a new ministry where he and his family are staying in the church parsonage. 

Meanwhile, the minister's home in the previous location is unsold. The minister is responsible for payments, taxes, and so forth, on the unsold home in the previous location. 
 
Can the minister claim a housing allowance on the unsold home? 

Answer:

The Ministers Audit Techniques Guide states that "A minister can receive a parsonage allowance for only one home." Many ministers own two homes due to the fact that the minister has accepted a position in a different community and has yet to sell his previous home (similar to the question above). 

Not only may a minister receive a housing allowance for only one home, but that home must be the minister's principal residence. A key term to understand here is the phrase "principal residence," which can be defined as the home where an individual is currently residing.  

So, in the situation above, the minister cannot claim a housing allowance on the unsold home. However, it is not a "lost cause" for the minister and his family. If living in a parsonage, the minister is allowed a small designated allowance to cover utilities and other housing expenses. Additionally, the minister must take into consideration the fair rental value of the property when reporting self-employment earnings for sake of the self-employment tax. 

Read about the controversial "Driscoll court ruling" that helped define the current IRS stance concerning a minister being able to receive a parsonage allowance for only one home. 

Also, we wrote a similar blog post concerning this matter on September 18, 2009:
Two residences for Housing Allowance Purposes? 

Health Insurance Marketplace - Exempt Based upon Membership in Health Care Sharing Ministry

Question:

According to HealthCare.gov, some individuals who don't have a qualified health insurance plan may be exempt from making the individual shared responsibility payment. I was reading the list of exemptions, and one of them stated an exemption for a member of a recognized health care sharing ministry.

What is a recognized health care sharing ministry? And what do I have to do in order to qualify for the exemption?

Answer:

A few days ago, we gave an overview of all the exemptions from the fee for not having health coverage. One of the exemptions we mentioned was based upon being a member of a recognized health care sharing ministry.

According to HealthCare.gov, a health care sharing ministry is "an organization whose members share a common set of ethical and religious beliefs and share medical expenses among themselves in accordance with these beliefs." The most common health care sharing ministries are Samaritan Ministries and Christian Healthcare Ministries.

H.R. 3590: U.S. Patient Protection and Affordable Care Act [26 U.S.C. 5000A(d)(2)(B)(ii); p. 128] details the federal definition of a recognized health care sharing ministry. Below is a summary of the characteristics that qualify a health care sharing ministry as being recognized by the federal government:
  • Must be a 501(c)(3) organization
  • Members must share common ethical or religious beliefs
  • Must not discriminate membership based on state of residence or employment
  • Members cannot lose membership due to development of a medical condition
  • Must have existed and been in practice continually since December 31, 1999
  • Must be subject to an annual audit by an independent CPA which must be publicly available upon request 
In order to qualify for this exemption, you have two options:
  1. You can claim this exemption when you fill out your 2014 federal tax return which is due in April 2015.
     

  2. You can follow the instructions on this application form and submit it to the Marketplace (same as HealthCare.gov). The instructions note that after the application form is submitted, you should hear back within 1-2 weeks concerning whether or not you have been granted the exemption. If you get an exemption from the Marketplace, you must keep the letter that the Marketplace sends you with your exemption certificate number (ECN). You will need the ECN when filing your personal federal taxes. 

October 29, 2014

Health Insurance Marketplace - Exempt Based Upon Hardship

Question:

According to HealthCare.gov, some individuals who don't have a qualified health insurance plan may be exempt from making the individual shared responsibility payment. I was reading the list of exemptions from the penalty, and I noticed one of them was called a hardship exemption.

What is meant by hardship? And what do I have to do in order to qualify for the exemption?

Answer:

Yesterday, we gave an overview of all the exemptions from the fee for not having health care coverage. One of the exemptions we mentioned was based on hardship.

Below are just a few of the circumstances that may qualify you for a hardship exemption. If you would like to know all 14 circumstances of hardship that might qualify an individual to be exempt from the fee, you can read the list at HealthCare.gov.
  1. You received a shut-off notice from a utility company
  2. You filed for bankruptcy in the last 6 months
  3. You experienced unexpected increases in necessary expenses due to caring for an ill, disabled, or aging family member
  4. You recently experienced the death of a close family member
  5. You had medical expenses you couldn't pay in the last 24 months that resulted in substantial debt
  6. Your individual insurance plan was cancelled and you believe other Marketplace plans are unaffordable
  7.  You experienced another hardship obtaining health insurance

In order to qualify for a hardship exemption, you must follow the instructions on this application form and submit it to the Marketplace (same as HealthCare.gov). The instructions note that after the application form is submitted, you should hear back within 1-2 weeks concerning whether or not you have been granted the exemption. 

If you get an exemption from the Marketplace, you must keep the letter that the Marketplace sends you with your exemption certificate number (ECN). You will need the ECN when filing your personal, federal taxes. 

October 28, 2014

MinistryCPA Special Topic: Exemption Overview for the Health Insurance Marketplace

The "shared responsibility payment" started in 2014, which means that every person needs to have health insurance or make a payment (a nice way of saying a fee) on his or her federal income tax return. However, HealthCare.gov lists some exemptions that may allow individuals to avoid making this payment. Below, we have broken down the various exemptions while describing the different ways to apply for them.

Several of the exemptions can be claimed in one of two ways: (1) either when you file your federal tax return for the year or (2) when you apply for the exemption early through an application form. The following exemptions can be claimed by either of the two options previously described:
  1. Exemptions based on coverage being unaffordable
  2. Exemptions for membership in a health care sharing ministry
  3. Exemptions for membership in a federally-recognized tribe
  4. Exemptions for being incarcerated
The following three exemptions can only be claimed in advance through an application form and not when you file your federal tax return:
  1. Exemptions based upon hardship
  2. Exemptions based on eligibility for services through an Indian health care provider
  3. Exemptions for membership in a recognized religious sect whose members object to insurance
The last three exemptions have special situations:
  1. Exemptions based on low income: If your income is low enough and you do not need to file a tax return, you do not need to apply for an exemption.  
  2. Exemptions based on coverage gap: If you have a gap in coverage of less than 3 months, you do not need to apply for an exemption.
  3. Exemptions based upon illegal presence in the U.S.: If you are not lawfully present in the U.S., you do not need to apply for an exemption.
If you do not qualify for these exemptions and if you do not have a qualified health insurance plan, here are the fees you will have to pay on your federal tax return. 


October 23, 2014

Age Limits for IRA Contributions

Question:

Up until what age can I contribute to my Traditional IRA or Roth IRA?

Answer:

As long as all other requirements are met, a person can contribute to his or her Traditional IRA until that person reaches the age of 70.5 years.

Roth IRAs are different in that contributions can be made regardless of age; there is no "age limit." 

Although a lengthy document, IRS Publication 590 is a great resource concerning Individual Retirement Arrangements (IRAs).

 

October 22, 2014

Milestone - 200,000 Page Views



Earlier today, we reached 200,000 total page views on this blog! 

In late 2007, Dr. Corey Pfaffe, CPA, began this blog with the purpose of answering financial and tax questions asked by ministers and others serving in Christian ministries. It took us until March 14, 2013 to get 100,000 total page views. Now, only nineteen months after that first milestone, we have reached 200,000 page views. 

Thank you to everyone who has used this blog and has helped us reach this milestone. We hope that MinistryCPA has been of service to you and that our posts continue to help guide you in ministerial and ministry tax issues. We look forward to serving you in the future and reaching our next milestone!

Corey Pfaffe - CPA, Principal
Tara Watterson - CPA, Senior Accountant
Laurie Pfaffe - Office Administrator
Kyle Kutz - Accounting Associate 

October 17, 2014

Cautions for a Church Serving as a Missions Agency

Question:

Our church is thinking about acting as a missions agency by directly supporting some missionaries. Do you see any concerns with doing this?

Answer:

In the past, we have provided blog posts concerning how churches have chosen to serve as missions agencies. Recently, however, we have deepened our research and discussion concerning this complex topic. Our research and experience has provided some additional cautions about a church taking on the responsibilities of a missions agency. 

Regulations for missionaries continue to become more complex. Unless a church is willing and able to thoroughly research and act in accordance with these regulations, we strongly discourage churches from acting as missions agencies. We fear that either the church or the missionary will not have the expertise to comply with the law. 

Recently, the following topics have added to that complexity:
  • Affordable Care Act
  • Foreign Bank Account Reports (FBARS)
  • Payments to foreign nationals
  • Retirement plans
  • Employee vs. contractor classifications
  • Payments to foreign charities
  • Foreign Account Tax Compliance Act (FATCA)
  • Expense reimbursement plans
Before making a decision to act as a missions agency, we strongly suggest that a church consider contacting us or its own professional advisor. 

October 10, 2014

Top Ten Q&A Update

 We have recently updated our Top Ten Questions that Ministers, Missionaries, and Church Treasurers Ask Tax Preparers

Based on our experience, the Top Ten Questions are frequent questions asked by ministers, missionaries, church treasurers, and others serving in ministry positions as licensed or ordained ministers. Our answers are not intended to be exhaustive. Accordingly, you should consult your own tax professional for assistance in applying our information to your specific situation. 

The "Top Ten Q&A" has been our most hit web page since 2010. Providing a helpful resource to many who are involved in ministry, it averages close to 1,000 page views every two weeks. 

If you prefer to download a PDF of our Top Ten Questions, click here


October 03, 2014

Cell Phone Reimbursement by Church

Question:

One of our pastors recently upgraded his iPhone and submitted for reimbursement through a professional account. Is it proper for the church to refund him fully as a non-taxable reimbursement? 

Answer:

The italicized excerpt below is taken from IRS Publication 15-B. We have added some of our own comments, which are in parenthesis and underlined. 

The value of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a working condition fringe benefit. Personal use of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a de minimis (non-taxable) fringe benefit. 

Noncompensatory business purposes. You provide a cell phone primarily for noncompensatory business purposes (the cell phone should not be a disguised way to give the pastor more compensation) if there are substantial business reasons for providing the cell phone. Examples of substantial business reasons include the employer's:
  • Need to contact the employee at all times for work-related emergencies (certainly seems to fit the description of most pastors)
  • Requirement that the employee be available to speak with clients at times when the employee is away from the office (also appears to apply to most pastors), and 
  • Need to speak with clients located in other time zones at times outsides the employee's normal workday. 

Basically, the IRS is saying that organizations are not required to report employer-provided cell phones as income to its employees as long as the cell phone is provided primarily for noncompensatory business purposes. If the iPhone is the pastor's only personal phone, then Publication 535 would likely lead to the conclusion that it was not primarily for noncompensatory business purposes. 

So then who reports the expense of the phone?

An individual can deduct certain un-reimbursed employee expenses on his/her tax return under certain circumstances. When considering the reimbursement of the phone upgrade, the pastor and church should keep in mind the following items:
  • The person or organization who pays the expenses is the one who gets to deduct them. So, if the church pays for an expense or reimburses the pastor for one, the pastor cannot take a deduction for that expense. 
  • If the pastor pays for his own expenses and doesn't get reimbursed, then he might be able to deduct them on his tax return. However, there are some limitations and restrictions on what and how much he can deduct.