MinistryCPA - Corey A. Pfaffe, CPA, LLC

The relentless efforts of a Wisconsin family to pass judgment on the clergy housing allowance were again stalled by the 7th U.S. Circuit Court of Appeals in Chicago in a decision announced Friday, March 15, 2019. The Court reversed the decision of a lower court in Gaylor et al v. U.S. Treasury which ruled that the clergy housing allowance was unconstitutional. Had the original decision stood, ministers in the states of Illinois, Indiana and Wisconsin would have lost the exemption from income taxation for church compensation designated to provide for clergy housing costs. As has been the case since the early days of social security, a clergy housing allowance remains subject to the 15.3 percent self-employment tax. We believe that the loss of the exemption to ministers within the 7th circuit would have quickly spread to all U.S. clergy. As advisors to many ministers, MinistryCPA expressed concern not only with the financial and public policy attacks against religious ministries, but wit...

Question :  A pastor approaches a church treasurer and requests that money be withheld from his paycheck for his tithe. How should a ministry handle this request? Answer : There are two ways to look at this. The first way involves directly reducing the pastor's taxable income. Although this may be considered a "great" tax planning move by some, it is possible this choice will run into trouble with the IRS. From a statutory perspective, the IRS would likely invoke the constructive receipt doctrine which states, in effect, that income you earn and are offered cannot be turned away simply for purposes of tax avoidance ( IRS Publication 525 ). Under these circumstances, the IRS would likely choose to add the income to the pastor's Form W-2 and tax it accordingly. The IRS would then permit him an itemized deduction; however, that may not turn out to be helpful if he chooses to take the standard deduction. On the other hand , if the pastor is simply asking for...

Question: A church treasurer asks, “Is tithing from payroll legally acceptable? And, if yes, how can I set it up through QuickBooks?” Answer: Many church and not-for-profit organizations find that their own staff members are among their most faithful donors! And, yes, it’s actually a good option for some employees. Of course, the same confidentiality and fidelity that oversees the charitable gifts of others to the employer must be exercised on behalf of staff members. In QuickBooks (Desktop version), set up a new payroll item and follow the sequence presented below. Give the deduction a name. The church or NPO could even set up multiple payroll items if some employees wanted to make designated gifts other than unrestricted contributions. Keep working through the sequence of intuitive QuickBooks windows until you reach the following setup window. None of the options here should be checked. Next…  AND VERY CRITICAL to calculate on net pay. ...

Question: A church rented space from another church last year. Should it request a completed Form W-9 and issue Form 1099-MISC? Answer: Payments from one 501(c)(3) organization to another 501(c)(3) organization are not subject to Form 1099-MISC reporting. The IRS 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 missionaries