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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Pastors Hit by New Tax Law: Wait—Maybe Not So Much!
A pastor no longer gets a benefit from writing off his unreimbursed ministry expenses. True?
NOT TRUE! The most valuable tax benefit for pastors who don’t get fully reimbursed for their ministry expenses by their church or Christian ministry IS STILL AVAILABLE.
TRUE … The Tax Cuts and Jobs Act (TCJA) enacted in December 2017 jettisoned the itemized deduction for unreimbursed employee business expenses. But, based on our experience serving more than 100 ministers, missionaries and ministry workers annually, the TCJA did not take away the most valuable tax benefit of writing off unreimbursed ministry expenses.
Ministers are considered “dual status employees.” This means, among other factors, that most pay their own social security and Medicare taxes—a tax rate of 15.3%. Non-minister employees typically have only 7.65% withheld from their paychecks, while another 7.65% is contributed by their employers.
As we suspected when the TCJA was enacted, and now confirmed in 2018 IRS Publication 517 (page 8, January 17, 2019), ministers who are employees of a church or other Christian organization and incur unreimbursed ministry expenses are allowed to reduce their self-employed taxable income reported on IRS Form 1040, Schedule SE. An attachment explaining the allowable expenses must be provided to the IRS, but unlike the loss of an itemized deduction for unreimbursed ministry expenses, this advantage survived the TCJA.
For example, a minister who incurs $1,000 of out-of-pocket expenses for ministry mileage, air travel, lodging, conferences, meals, publications and other costs will enjoy a reduction of an effective $141 of self-employment tax that is unavailable to typical non-minister employees.
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…
Can payments made to a health care sharing ministry (e.g., Samaritan Ministries, Christian Healthcare Ministries) which are exempt from the Affordable Care Act be deducted from income as a self-employed (SE) insurance deduction?
First, to be technical, "health care sharing ministries" (IRS exemption D) provide participants an exception from Shared Responsibility Payments (ACA penalties), but don't connote other tax benefits.
Second, a health
care share ministry does not qualify as health insurance. One does not pay what the IRS considers to be premiums, but
instead shares the health expenses of others. And according to IRS Pub 535, in order for self-employed individuals to qualify for a SE insurance deductions they must be to pay
premiums for qualifying health insurance.
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?
The church has two main alternatives for this purchase: Title the car in the pastor's name and reimburse him for business expensesTitle it in the church's name and treat personal use as taxable compensationThere 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 church can reimburs…