Skip to main content

403(b) Employer Contributions - Subject to FICA Tax?

By
Question:

Are 403(b) retirement plan contributions made on behalf of the minister by the church subject to FICA tax? (The amount contributed was not deducted from the minister's salary; it was made by the church as an employee benefit.)

Answer:

Simply put, employer contributions are not subject to FICA tax.

However, this is a good opportunity to review elective deferrals. Elective deferrals are monies chosen by employees to be deducted from their paychecks and contributed to the employer-sponsored retirement plan. 

 Non-minister employees who choose elective deferrals do not reduce the amount of FICA wages that need to be reported. In other words, the elective deferrals are subject to FICA tax. 

 Ministerial employees are not subject to FICA tax in the first place (read our March 21, 2011 blog post for more info). Therefore, any monies the minister defers to the employer-sponsored retirement plan are not subject to FICA tax. 

 For a review on the 403(b) contribution limits for 2014-2015, read our November 24, 2014 blog post. 
Labels:

Comments

Post a Comment

Popular posts from this blog

Church Car Purchase for Pastor

By
Question: A church would like to purchase a car for the pastor's use. What is the best method to accomplish this goal? Should the car be titled in the pastor's name? What will be the tax consequences of this arrangement? Answer: The church has two main alternatives for this purchase:  Title the car in the pastor's name and reimburse him for business expenses Title it in the church's name and treat personal use as taxable compensation There are fewer immediate tax consequences for the latter. Since both are viable options, we will discuss both situations in this post. If the church chooses to give the car to the pastor and register it in his name, he is free to use it for whatever personal use he desires with no tax consequences. However, the fair value of the car is taxable as compensation at the time it is given to the pastor. Internal Revenue Code section 102(c) clearly states that gifts given to employees by their employers are taxable compensation. The...
2 comments
Read more

Rental of a Church Parsonage to a Non-Minister

By
Question: A church owns a parsonage, but the pastor does not use it as he owns his own home. The church rents the parsonage to a tenant other than a minister or employee of the church. Will the church be responsible for paying income tax on these monies as Unrelated Business Income (filing a Form 990-T) even if the money is used to carry on the business of the church? Answer: Whether the money is used for church purposes is irrelevant.  IRS Publication 598  states: "If an exempt organization regularly carries on a trade or business not substantially related to its exempt purpose, except that it provides funds to carry out that purpose, the organization is subject to tax on its income from that unrelated trade or business." Fortunately, in the case of rental income from real property, such income is "excluded in computing unrelated business taxable income" (Publication 598). Caution: see content below regarding debt-financed property.  However, a second concern not a...
Post a Comment
Read more

Debits and Credits for Designated Gifts

By
Question: A church is setting up QuickBooks for its accounting, but its personnel have little experience with fund accounting. What are the entries for the receipt and disbursement of designated gifts and the opening balances? Answer: We recommend that most churches that do not need to present financial statements in accordance with Generally Accepted Accounting Principles (GAAP) observe the following steps. Even those churches that do report using GAAP can employ these methods but must make some adjustments when preparing their financial statements. What we will demonstrate relates to what most churches call "designated gifts" (CPAs call these  Temporarily Restricted  gifts). These are gifts that donors contribute with the intention that the church will spend the funds as they direct. Most churches do not receive "endowment gifts" in which donors prohibit the expenditure of the core gift (CPAs call these  Permanently Restricted  gifts). Only earnings on the subsequ...
12 comments
Read more