Transcript Ocean - MinistryCPA

Church and Christian Ministry
Compensation Concepts
B y Corey A. Pfaffe, CPA, PhD, Spring 2012
Employee or Independent Contractor
• Who is an employee and who is not?
• You can ask the IRS, if you wish
• Typical church employees
– pastors
– office and facilities staff
• Typical church independent contractors
– janitorial and snow removal service companies
– accounting/bookkeeping service firms
According to the IRS, who is a minister?
And, what difference does it make?
• A minister is an individual who is a “duly
ordained, commissioned, or licensed minister of
a church” [and other 501(c)(3) religious
organizations] who performs services “in the
exercise of his ministry.”
• Dual Status
It makes a big difference to be both an
employee and a self-employed person!
• Eligible for all employee benefit provisions of the
Internal Revenue Code, the most common are:
– Health care plans
– Retirement plans
• 7.65% (5.65% in 2011+) FICA tax withholding
replaced with personal responsibility for 15.3%
(13.3% in 2011+) SE tax
• Federal and state income tax withholding
optional
• Form 1040-ES
Typical Minister’s Annual Form W-2
$35,000
30,000
(6,000)
(5,000)
$54,000
Cash salary
Housing allowance designation
Minister’s 403(b) plan elective deferral
Pastor’s optional federal and state
income tax withholding
Net amount paid to minister
Typical Minister’s Annual Form W-2
$35,000
30,000
(6,000)
(5,000)
$54,000
Cash salary
Housing allowance designation
Minister’s 403(b) plan elective deferral
Pastor’s optional federal and state
income tax withholding
Net amount paid to minister
Typical Minister’s Annual Form W-2
$35,000
Cash salary
30,000
Housing allowance designation
(6,000) Minister’s 403(b) plan elective deferral
(5,000) Pastor’s optional federal & state tax withholding
Irrelevant
items
$54,000
Net amount
paid to minister
• Accountable plan for professional expense
reimbursements
• Health insurance premiums and other qualified
health benefits
• Employer contributions to 403(b) plan
Housing Allowance
• Principal residence
• Three-part test
– Actual expenses
– Designated amount
– Fair rental value, plus actual cost of utilities
• Partial reduction of deductible expenses
Retirement Plan Options
• Internal Revenue Code Section 403(b) plans
• Traditional Individual Retirement Accounts
(IRAs)
• Roth IRAs
(and Roth 403(b) plans)
Health Benefits for Ministers
• Health insurance
• Health Reimbursement Arrangements (HRAs)
• Health Savings Accounts (HSAs)
Professional Expenses
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Travel—car (@ $.555/mile), airplane
Lodging and meals
Materials
Entertainment
Opting Out of Social Security
• 15.3% (13.3% in 2011+) SECA; not 7.65% (5.65%
in 2011+) FICA
• Requirements
• Caution!
For more information...
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Non-profit organization accounting principles
Compensation practices
Benevolent activities
Contributions issues
Foreign missions support
Ministerial tax planning
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