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Showing posts from January, 2015

Review: Form 1099 Payments to 501(c)(3) Organizations

Question:

A church rented space from another church last year. Should it request a completed Form W-9 and issue Form 1099-MISC?

Answer:

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:

Form 1099 for Payments to Other Ministries
Form 1099 for Non-profit?
Fo…

When a Minister Earns Non-Minister Wages

Question

A church has recently hired a minister who will also work 5-10 hours each week as the church's custodian. Are all of the minister's wages exempt from FICA? Are there any issues the church should consider when issuing the minister his W-2? 

Answer

The church must understand that the minister is exempt from FICA taxes only for wages he earns performing ministerial duties. 

A review of the definition of a minister is helpful. The Internal Revenue Service's Minister Audit Technique Guide states the following:

Treas. Reg. 1.1402(c)-5(b)(2) provides that service performed by a minister in the exercise of the ministry includes:
Ministration of sacerdotal functions;Conduct of religious worship;Control, conduct, and maintenance of religious organizations (including the religious boards, societies, and other integral agencies of such organizations), under the authority of a religious body consulting a church or denomination.If the minister performs other duties for the church tha…

Religious Exemption from "Shared Responsibility Payment"

Question:

What qualifies as a religious exemption from the shared responsibility payment that individuals must pay if they do not have qualified health insurance? 

Answer:

Those who have stayed current with our blog have educated themselves on the fee ("shared responsibility payment") they will have to pay on their 2014 tax return if they do not have minimum essential health insurance. In our October 28, 2014 post, we gave an overview of the exemptions from the "shared responsibility payment." 

In our October 31, 2014 post, we discussed how health care sharing ministries offer the most common exemption that our readers may qualify for. A separate exemption, officially listed on HealthCare.gov, states that an individual does not have to pay the fee if the individual is "a member of a recognized religious sect with religious objections to insurance, including Social Security and Medicare." 

Deciphering who qualifies for this religious exemption may sound a littl…

Health Care Sharing "Premiums" Do Not Qualfiy for Cafeteria Plans

Question:

Is it legal to use a Section 125 cafeteria plan or Health Reimbursement Arrangement (HRA) to pay the monthly "premiums" ("share payments") of a health care sharing ministry?

Answer:

First, let's discuss what a cafeteria plan is... Generally, the terms "Section 125 plans" and "cafeteria plans" are synonymous. According to a page on the  IRS website, a cafeteria plan is a separate written plan maintained by an employer for employees that meets the specific requirements of and regulations of Section 125 of the Internal Revenue Code. It provides participants an opportunity to receive certain benefits on a pretax basis. Participants in a cafeteria plan must be permitted to choose among at least one taxable benefit (such as cash) and one qualified benefit.

Second, let's discuss what an HRA is... An HRA is a tax-advantaged benefit that allows both employees and employers to save on the cost of healthcare. HRA plans are employer-funded med…

IRS Determination Letter for Church

Question:

Does a church need an IRS Determination Letter?

Answer:

Generally, a church is already considered tax exempt and is eligible to receive tax-deductible contributions; therefore, a determination letter is not needed. But sometimes a church does need an IRS Determination Letter. To ascertain if a church needs a letter, the church should consult an attorney or CPA. 

Requesting a 501(c)(3) IRS Determination Letter can be a time-intensive and costly process, if a letter is needed. Form 1023 needs to be filed to request the determination letter. The IRS's filing cost for Form 1023-EZ is $400. If a full Form 1023 is needed, the filing costs are higher. We encourage any nonprofit to work with a law firm or CPA firm when filing the Form 1023.

Here is an excerpt from the Form 1023 Instructions:
Form 1023 not necessary. The following types of organizations may be considered tax exempt under section 501(c)(3) even if they do not file Form 1023. 
Churches, including synagogues, temples, and …