Transcript CLERGY COMPENSATION - Lutheran Theological Seminary at

CLERGY COMPENSATION
A Presentation for Seniors
Lutheran Theological Seminary
at Gettysburg
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Stewardship of Rostered Leaders
• We live from the resources of others.
• You need enough compensation to live on
AND you are being supported by the
resources of the people of God. Personal
stewardship matters.
• Charitable contributions matter.
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COMPENSATION COMPONENTS
Compensation – CASH
+ Salary
+ Housing Allowance or Parsonage Allowance
+ Social Security (SECA) Allowance
+ Other Income - CASH
= DEFINED COMPENSATION
+ Compensation – BENEFITS
•
•
•
•
Medical Insurance
Pension Plan
Vacation
Other Days
= TOTAL COMPENSATION
Reimbursed Expenses
Travel
Continuing Education
Publications
Official Meetings
Entertainment
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SALARY
• Check minimum salary guidelines for the
synod
• Pay attention to categories and definitions
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Negotiation???
• Some first-call congregations do not offer the
minimum; this is worth a conversation with the
Bishop
• Ask for some recognition of “first career”
experience
• Regular personnel reviews and salary
adjustments; if not at minimum, ask for early
review
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Housing Allowance
• Clergy are entitled to a special tax exclusion-amounts spent on housing are excluded from your
taxable income. You receive the funds but you do
not declare the funds as taxable income.
• YOU decide this amount, not the congregation!
Often Synod guidelines list an amount, but YOU
decide the amount you will declare as housing
allowance
• The Congregation Council MUST approve each
year the amount you designate and it must be
recorded in the official minutes
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HOUSING ALLOWANCE
• Estimate amount for upcoming calendar year:
• sum of rent or mortgage principal and interest
• Utilities (electricity, gas, fuel oil, water & sewer, trash
collection, cable, phone, internet)
• Furnishings (furniture, appliances, rugs, curtains,
durable goods)
• Real estate property taxes, property insurance
• Maintenance costs for house and yard (lawn mower,
weed eater, grass seed, fertilizer, paint, major repair
costs)
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Housing Allowance
• Keep track of all “Housing Allowance”
expenditures during the calendar year
• Compare your Estimated/ Declared amount with
the Actual amount
• NON-TAXABLE amount for IRS purposes is
smaller of estimated allowance designated at
beginning of year OR actual expenditures at end
of year
• (Total is also limited by fair market value
calculations)
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Housing Allowance – practically
speaking
• Make a good estimate of your eligible housing
expenses for the calendar year
• Add some amount to the estimate as a cushion
(10%-15%)
• You want your approved housing allowance to be
at least as much as your expenditures, but not
too much more than your actual.
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PARSONAGE
• Parsonage generally considered to be worth 30%
of salary (when comparing call packages)
• Congregations may provide furnishings and/or
utilities allowance that is treated as “housing”
allowance
• Congregations may provide equity allowance
(synod guidelines typically 1%-3%) Deferred
income held in investment account, taxable upon
distribution
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Example: A pastor earns an annual salary of $42,000
and designates $12,000 as housing allowance in
January. When the pastor totals all receipts on
housing at the end of the year, the actual amount
spent on housing was $10,500.
How much can the pastor exclude from taxable
income as non-taxable housing allowance?
How much would the pastor’s taxable income be?
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Social Security Allowance
• Employees of a business are responsible for FICA
tax (Federal Income Contribution Act). The
employer pays 50% and the employee pays 50%
of the total rate of 15.3% (7.65% each).
• Pastors are self-employed for Social Security
purposes and are required to pay SECA tax (SelfEmployment Contributions Act) on full salary
(including amounts designated as housing
allowance). The rate is 15.3%.
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SECA Allowance
• Many synod guidelines suggest a minimum of
50% = 7.65% (“employer’s” portion); some pay
the full amount.
• Whatever is paid to you is included in your total
defined compensation.
• The actual calculation of SECA tax due is done on
Schedule SE (more later) and submitted along
with your federal income tax.
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DEFINED COMPENSATION
+ Base salary (taxable amount)
+ Housing allowance (non-taxable amount)
+ SECA allowance paid to you (if applicable)
= Total Defined Compensation
For purposes of calculating benefits
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Other Income
• Interest and dividend income
• Fees received for weddings, funerals, etc.
Check congregational policy. Consider
carefully.
• Bonuses; Christmas gifts that are collected
by congregation-wide solicitation
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Cash Compensation
Salary
Housing Allowance
Taxable salary
$45,000
(12,000)
33,000
Set aside for taxes
( 7,000)
Usable Cash
$26,000
Spent on housing
Food, clothing,
entertainment,
student loan pmts,
car pmts, charity,
etc.
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Compensation - BENEFITS
• Medical Insurance – coverage in the ELCA plan
for rostered leader or rostered leader and family
• Pension Plan – 10% to 12% of defined
compensation contributed by congregations;
your additional pre-tax contributions are taxdeferred
• Vacation – 4 weeks per year, incl 4 Sundays
• Other days – sick leave, maternity/parental
leave, continuing education days (2 weeks, incl 2
Sundays), sabbatical policy (min. 3 months after
7 years)
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Cost of Benefits
• Very helpful calculators at
https://www.elcabop.org/calculators
• Defined Compensation Calculator
• You input Base Salary of $33,000
• You input Housing Allowance of $12,000
• Calculated SECA (“employer’s portion”) of $3,066
(if being paid to you)
• Calculated Defined Compensation of $48,066
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Cost of Benefits
• Benefits Contribution Calculator
• Input Defined Compensation and make choices
for benefit levels
• Single coverage, 10% pension, Lower
Susquehanna means benefits cost the cong
$12,260/yr
• Family coverage, 12% pension, Lower
Susquehanna means benefits cost the cong
$22,737
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Compensation Package
• Most congregations have a “bottom line”
amount in mind for the cost of the
rostered leader.
• Use the Total Compensation calculator to
move money between line items.
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Examples
Medical – Member only 6,348
Pension Plan 10% 4,778
Other (Disability, etc) 1,099
Total Benefits 12,225
Compensation – Cash 47,775
Compensation Package $60,000
15,864 Medical – Family
4,634 Pension Plan 12%
888 Other
21,386 Total Benefits
38,614 Compensation - Cash
$60,000 Compensation Package
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Reimbursed Expenses
• Travel
• Reimbursement of actual business mileage
(commuting mileage is not included) OR
• Estimated auto allowance agreed on in
advance; compare with actual mileage and
settle account at end of year
• Either way, keep a log of daily mileage!
• Receipts for other travel expenses (parking,
tolls)
• Moving Expenses
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Reimbursed Expenses
• Continuing Education
• Minimum 50 Contact Hours per year, report to
Bishop annually
• Annual amount (minimum $700) cumulative
for specified number of years
• Continuing Education Covenant with
Congregation
• Publications
• Annual amount for books and periodicals
(minimum $100)
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Reimbursed Expenses
• Official Meetings
Costs related to attending Synod and conference
meetings, area ministers’ association, etc.
• Entertainment
Costs related to meals with business colleagues
or parishioners. Consider carefully.
• Congregation should be prepared to pay for
supply pastors for Sundays away from parish or
preachers on special occasions (Homecoming,
Rally Day)
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CLERGY TAXES
www.irs.gov
Publication 517 Social Security and Other Information for
Members of the Clergy & Religious Workers
http://www.elca.org/treasurer/congregations/index.html
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CLERGY TAXES
BASIC RULE:
Clergy are considered EMPLOYEES for Federal and
State Income Tax purposes (pay income taxes)
and SELF-EMPLOYED for Social Security purposes (pay
self-employment tax)
Form 1040 is used to remit Federal Income tax and
SECA tax
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Understanding “Tax Liability”
The tax form is organized as follows:
Income
- Deductions from income
= Adjusted Gross Income (line 37)
- Deductions and Exemptions
= Taxable Income (line 43)
Tax Liability (line 61)
Tax payments during year (line 72)
= Tax owed or refunded (line 73 or 76)
(write a check or receive a check)
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Getting started for first call
1. Determine your 2012 tax liability (line 61 on Form 1040)
2. Estimate your 2013 tax liability using the 2012 forms and
rates
Amount to be reported on W-2
Taxable salary 2013
$36,000
(W-2 Box 1)
Call begins July 1, so use 50% = $18,000
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Estimated Tax Liability
The law requires that a taxpayer pay in during the
year the smaller of:
- 90% of the current year’s (2013) tax liability
OR
- 100% of the previous year’s (2012) tax liability
Otherwise, the taxpayer is subject to an
underpayment penalty
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An Example…
Calculated tax liability (line 61) for 2012 is $125
Estimated tax liability for 2013 $3,500
Minimum required payment during the year of
2013 is smaller of:
90% of 2013
$3,150
or 100% of 2012
$125
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Managing Taxes
Each year, you will need to make estimated tax
payments during the year to pay in the required
amount
Estimated tax payments are made in 4 equal
installments on April 15, June 15, Sept 15 and
Jan 15
Download the estimated tax voucher (1040ES) at
www.irs.gov
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Partial Year Taxes in 2013
Amount owed for 2013 is $3,500 or $583.33 per
month for 6 months of call
Set aside at least this much every month in a savings
account – consider Mission Investment Fund for
this
Make an estimated payment of $125 on Sept 15,
2013 (due date of first estimated tax payment);
Write a check to the IRS on April 15, 2014 for
$3,375 ($3,500 - $125)
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Tax Quiz
Jezebel accepts a call to Land of Canaan Lutheran
Church, is ordained on July 1, 2013, and begins
serving on the same day.
Her compensation package says she will receive a
total annual amount of $45,000, of which $9,000
has been designated by the congregation as
housing allowance.
1. What should Jezebel do with respect to her
housing allowance and compensation package?
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Jezebel attended the Senior Seminar, so she
understands the basics of clergy taxes. She
determined her 2012 tax liability was $250
and estimates her 2013 tax liability at
$3,600.
2. How much should Jezebel set aside each
month as taxes?
3. What is the minimum amount Jezebel must
pay to the IRS during 2013? When?
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4. Jezebel estimated her housing expenses
for July-Dec at $4,000. At the end of 2013,
Jezebel calculates she spent $3,500 on
housing expenses. What effect does this
have on the amount to be reported on line
7 of Form 1040?
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Jezebel completes her 2013 Form 1040 and
calculates her final tax liability of $3,850.
(She estimated a tax liability of $3,600.)
5. Does she owe any underpayment penalty
because she underestimated the amount of
her 2013 tax liability?
6. How much does she owe in taxes and by
when?
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Jezebel estimates her 2014 tax liability will be
$10,000.
7. Does Jezebel owe payments during 2014?
How much and when?
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My best advice:
• Ask clergy colleagues in the area to
recommend a CPA who has worked with
clergy taxes
• Be familiar enough with clergy taxes to
have reasonable confidence in what the
CPA is doing on your behalf
• Keep [email protected] in your contact
list
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