MinistryCPA - Corey A. Pfaffe, CPA, LLC

     How can my ministry expenses be covered?                            Many ministers use their personal autos for ministry purposes. Their employers can reimburse these costs using a standard mileage rate published by the IRS. The per mile rate represents employees’ entire reimbursable cost other than highway tolls and parking tabs. If not covered by use of the ministries’ credit card, other costs can be reimbursed as well—business and travel meals, lodging, office supplies, and professional library purchases among them. Some ministries reimburse travel costs using per-diems published by the IRS. If employee business expenses are not reimbursed, the personal tax deduction benefit to the individual minister is severely limited. Non-taxable reimbursements after documentation is provided to the employer follows IRS rules for accountable plans. Non-taxable cash advances before expenses are in...

       What are my options for retirement savings?                  Regardless of options, start now! You probably have learned about traditional and Roth IRAs. We have often found them well short of the benefits we will share here regarding Internal Revenue Code section 403(b) plans. These plans must be established by your employer (although you might need to be the initiator). They are funded in two ways—withholding from your paycheck at your option (called “elective deferrals”) and as initiated by the employer (matching or non-elective contributions). These contributions not only save income tax, but they also reduce the income you must report as subject to the 15.3% SECA tax. Further, at retirement with the cooperation of your church or Christian ministry the distributions to you can be tax-free to the extent of your qualified housing expenses. Many ministries also adopt what are often called “FICA alternative” be...

    What are my options for health coverage as a minister?                       Many churches and Christian organizations have discontinued providing employer-paid group health plans. In lieu of paying out extremely expensive, one-size-fits-all insurance premiums, some have opted to provide taxable stipends and let employees shop for their own coverage. The good news: you can choose your own. The bad news: the stipend may not be enough and securing coverage can be complicated. Health care sharing plan options can be more economical. But they don’t qualify as standard health insurance: health care providers can balk, and the monthly subscriptions are not tax deductible. The Marketplace ( www.healthcare.gov ) offers alternatives, including advance premium tax credits to help with the monthly costs. Watch out for unpleasant surprises, however, since the tax credits must be reassessed when you file your annual Form...

Can I “opt out” of paying SECA tax on my ministerial income?        Maybe. But it’s rarely a good idea. To apply for exemption, ministers within their first two years of employment file federal Form 4361. It involves agreeing with a conscientious objection that for purposes of your ministerial income (and only your ministerial income) you are opposed to the government taking responsibility for your financial protection “in the event of death, disability, old age, or retirement” when you believe it is the responsibility of your church or Christian ministry to provide for these needs. Read the Form to see if you agree with this interpretation. Of course, if you “opt out” then you must carefully invest the savings of not paying the 15.3% SECA tax. If you earn at least 40 quarters of non-ministry employment you will still qualify for Medicare insurance at age 65 (under current law) and earn a small social security retirement benefit (learn more at www.ssa.gov ). But you ...

        What should I do for a housing allowance?                  Good! You’ve heard about it. For a long time, ministers have been able to live in a church parsonage without paying income tax on the benefit (except for state income tax purposes in Pennsylvania). But you do owe the 15.3% SECA tax on its fair rental value, just not income tax. The same is true if you are purchasing or renting your own home. The amount of cash income you can exclude in those cases is the lowest of three amounts: 1) The amount of your cash compensation that your employer designates as housing (in lieu of providing you a parsonage to live in), 2) the amount you actually spend for housing, just not food or servants (it’s a very old rule), and 3) the fair rental value of your home, plus the cost of your utilities. It almost all cases, we recommend that you “guess high.” You never know what surprises might come in terms of your ...

How do I know whether I’m a minister or a non-minister employee?        This is typically a more important question than one might think. Ministers must pay all of their own SECA tax, but they are also eligible for other very favorable benefits. For example, ministers can exclude from income tax the value of free housing while living in a parsonage. Even if they are purchasing or renting their own home, a portion of their cash compensation can be designated as an income tax free housing allowance. (More about that later.) And retirement benefits for ministers offer significant advantages that are not available to non-ministers. (Again, more about that later.) Okay, here’s the answer: ministers are employed “in the exercise of their ministry.” IRS Treasury Regulations offer examples: 1) services performed by duly ordained, licensed or commissioned individuals; 2) individuals conducting sacerdotal functions like baptisms, communion, marriages, and funerals; and 3) lead...

Encouraging QCDs (Qualified Charitable Distributions) — Church and NFP Actions Since January 1, 2018, generous supporters at least 70½ years old have enjoyed a new means of giving. No longer should they find themselves withdrawing funds from their Individual Retirement Accounts ( and paying tax ) only to make charitable contributions that have no tax deduction benefit. To recall, these donors can have their IRA companies withdraw from their retirement investments, sending the distributions directly to the charities of their choice. They cannot deduct the amounts as tax write-offs, but neither do they owe tax on the distributions. These distributions also satisfy IRS rules for annual Required Minimum Distributions (RMDs) that are mandatory beginning at age 73. How can your church or NFP assist these donors? 1.       Educate. Make sure your supporters understand QCD rules and processes. Encourage them to ask their IRA investment advisors for clear instructio...

      What does it mean to be a dual status employee?                  A minister, per IRS regulations, is both an employee and self-employed— dual status . As an employee, a minister is eligible for all fringe benefits offered to non-minister employees — health coverage, retirement plans and so on. The exception lies in social security and Medicare tax. Non-minister employees must have 7.65% of their wages withheld to pay for one half of their social security and Medicare taxes (it’s called FICA tax). Their employers forward this withholding to the IRS along with a matching 7.65% — a total of 15.3%. As a minister employee serving church and other ministry employers you must pay your own social security and Medicare taxes—all of it, 15.3% (it’s called SECA tax).  This excerpt is a portion of our top 10 list for new ministers. If you would like to see all of the frequently asked questions ministers have you can visit ...

     How can I live within my means?                  You need a budget. Enjoying a long-term ministry in Christian service requires an ability to live within your means. Lots of tools are available: Christian authors with “how to” instructions and online apps, to name a couple. Try You Need a Budget ( www.ynab.com ), if you need an idea. This excerpt is a portion of our top 10 list for new ministers. If you would like to see all of the frequently asked questions ministers have you can visit this  link .