July 23, 2014
Don't forget this important date.
For expert help with all of your church's tax questions, check out the 2014 Church & Clergy Tax Guide.
July 23, 2014
Don't forget this important date.
For expert help with all of your church's tax questions, check out the 2014 Church & Clergy Tax Guide.
May 27, 2014
Can individuals who go on mission trips deduct their expenses?
Q: For my church's short-term mission trips, participants give the church money for a special fund that's used to pay their trip expenses (airfare, lodging, and so on). Some participants believe the money they spend for a trip is tax deductible and should be listed on their contribution statements. A mission organization I contacted agrees with this thinking. My understanding, though, is that only funds for a ministry and not for an individual are deductible. Who is correct?
A: I will defer to the guidance I offer on charitable contributions and mission trips in chapter 8 of the 2014 Church & Clergy Tax Guide. Based on your description, I believe this scenario from the guide most closely resembles your situation:
Who pays travel expenses (transportation, lodging, meals): Church
May 15, 2014
Can a new hire receive a housing allowance for the rest of the year?
Q: We're in the process of hiring a new youth pastor. Can we implement a housing allowance for the rest of 2014?
A: Presuming your new hire meets the criteria to qualify for a housing allowance, the church can set an allowance effective on their first day on the job (presuming they haven't started yet) through the end of the year. If they have already started, the allowance can be set from this day forward (in other words, an allowance can't be set retroactively).
Also, make certain the allowance is used to pay housing expenses and doesn't exceed the fair rental value of the home (furnished, plus utilities). Be sure to put the allowance in writing--perhaps as a part of the official minutes of the committee or board meeting at which the allowance is set.
May 8, 2014
Specific rules dictate the tax treatment for pastors and donors.
Update: This post was updated on 5/22/14 to clarify the tax deductibility of contributions made by donors toward a trip.
Q: Our church's CPA says that because a Holy Land trip will serve in the continuing education of our pastor, it would be a tax deductible expense, and that anyone who contributes to the pastor's trip may receive contribution credit. Is this correct?
A: There are two questions here: (1) Whether the trip is a tax deductible benefit for the pastor; and (2) whether donors may receive contribution credit for giving toward the trip.
Regarding the first question, Richard Hammar directly addresses it in Chapter 4 of the 2014 Church & Clergy Tax Guide. Basically, he notes many churches present their minister with an all-expense paid trip to the Holy Land. This benefit constitutes taxable income if either or both of the following statements are true:
April 8, 2014
A pastor asks if it's too late for him to opt out.
Q: I have been a pastor for 15 years. In the beginning of my pastorate, I received some confusing information from the IRS about opting out of social security, so I never did.
I recently became ordained in the denomination that I have always served in. I also now understand the opt-out issue. Is there any way I can proceed with opting out now?
March 27, 2014
What's the right amount for mileage reimbursement?
Q: For church employees using their personal vehicles for church business, do they use the 56 cents or the 14 cents for mileage reimbursement in 2014?
A: I directly address mileage reimbursements in Chapter 7 of my annual Church & Clergy Tax Guide.
Every year, the IRS provides guidance pertaining to a reimbursement rate for the business use of personal vehicles by employees, such as pastors and staff. In 2014, the IRS recommended 56 cents per mile. Only employees who own their vehicles and used them in the first year they were available to their employers for use in their work can be reimbursed.
The 14-cent rate is set by statute, and it pertains to the business use of personal vehicles by unpaid volunteers of charitable organizations. Churches that reimburse volunteers for the use of their personal vehicles on church business can only use the 14-cent rate.
March 20, 2014
Don't slow down the process with these easy-to-avoid errors.
The IRS urges taxpayers to review their tax returns for common errors that could delay the processing of their return and refund. Here are ten ways to avoid mistakes:
March 13, 2014
It's not as hard as you might think.
Ministers can prepare their own tax returns. While ministers' taxes present several unique rules, these rules are not complex. Unfortunately, many people confuse uniqueness with complexity. With a little effort most ministers should be able to comprehend these rules sufficiently to prepare their own tax returns. The information provided in my Church & Clergy Tax Guide, together with IRS Publication 17 (Your Federal Income Tax), should be all you need in most cases. Of course, some ministers will prefer, for a variety of reasons, to have someone else prepare their tax returns. If that is your choice, be sure you select someone with experience in the preparation of ministers' tax returns (preferably a tax attorney or a CPA). You may wish to share a copy of the Church & Clergy Tax Guide with the person you select.
March 11, 2014
The IRS says don't fall for these 12 schemes to steal your money.
Each year, the IRS releases its "Dirty Dozen" list of top tax scams. Here are the 12 scams you and your church should watch out for this tax season:
Find details about each of the 12 scams at IRS.gov. The IRS also reminds taxpayers that tax scams can take many forms beyond the "Dirty Dozen," and you and your church should be on the lookout for many other schemes.
For expert help with all of your church's tax questions, check out the 2014 Church & Clergy Tax Guide.
March 6, 2014
Ministers aren't exempt—so why do some still try to avoid them?
Ministers are not exempt from paying federal income taxes. Since 1943 (Murdock v. Pennsylvania, 319 U.S. 105), the United States Supreme Court has ruled that the First Amendment guaranty of religious freedom is not violated by subjecting ministers to the federal income tax. And yet, ministers have tried to argue against this ruling for decades. The courts have rejected every attempt by them (some with only mail-order credentials) to claim that they are exempt from the payment of income taxes. Such ministers wrongly assume that because certain of their income may be exempt from withholding of taxes, this also means they're exempt from paying taxes. One case helps clarify this common misunderstanding.
February 18, 2014
Choose a person with experience preparing ministers' tax returns.
Let's assume you've decided to have your tax return prepared by a professional. The next step is to find someone who is experienced and competent in the preparation of ministers' tax returns. Here are some tips to help you find such a person:
January 28, 2014
Last-minute help for completing these important forms.
Churches need to report each employee's taxable income and withheld income taxes as well as Social Security and Medicare taxes on Form W-2, and furnish copies B, C, and two of the 2013 Form W-2 to each employee by January 31, 2014. Copy A should be submitted to the Social Security Administration by February 28, 2014, along with Form W-3, Transmittal of Wage and Tax Statements. If your employees give their consent, you may be able to furnish Forms W-2 to your employees electronically. See IRS Publication 15-A for additional information.
January 24, 2014
Process with Seventh Circuit may take up to a year to resolve.
Richard Hammar, senior editor of Church Law & Tax Report and ChurchLawAndTax.com, reports the Justice Department filed a notice of appeal this afternoon in the Wisconsin clergy housing allowance case.
In late November, a federal district judge ruled the housing allowance provided to clergy was unconstitutional. The judge stayed the decision, pending the appeals process. The deadline for an appeal was this coming Monday, January 27. For the time being, housing allowances are allowed in the Wisconsin district and should be designated by churches there, Hammar said.
The Seventh Circuit Court of Appeals in Chicago will hear the appeal. The same appellate court overturned a prior ruling by the same judge a few years ago, in which the judge ruled the National Day of Prayer was unconstitutional.
Hammar provided an in-depth analysis of the housing allowance ruling, and its potential implications, in the January/February 2014 issue of Church Law & Tax Report. He said an appeal, if filed, could take up to a year to get resolved.
If the Seventh Circuit affirms the ruling, then it would affect churches and clergy in Wisconsin, Illinois, and Indiana--the three states covered by the Seventh Circuit. More significantly, though, it also would likely force the Internal Revenue Service to consider applying the ruling nationally to ensure the consistent treatment of clergy for tax purposes, regardless of their geographic location.
Should the Seventh Circuit overturn the ruling, the plaintiff--the Freedom From Religion Foundation--would have the option to appeal to the Supreme Court. Hammar considers the likelihood of the Supreme Court hearing such an appeal to be small.
Watch for updates on ManagingYourChurch.com and ChurchLawAndTax.com.
January 23, 2014
These pitfalls often trip up churches.
In the video below, Richard Hammar reviews what he considers the ten most common payroll tax errors made by churches. Hammar, along with Christianity Today, publishes a comprehensive tax review in his annual book the Church & Clergy Tax Guide, available at ChurchLawAndTaxStore.com. To stay up-to-date on all legal and tax information for the church year round, visit ChurchLawAndTax.com.
January 21, 2014
Why leaders must remember this important tax-related task.
Churches and businesses must issue their employees' 2013 W-2s by January 31. This applies to clergy who report themselves as employees, but not the self-employed. This is a critical date for all organizations.
When churches don't issue W-2s in a timely fashion, it strains relationships with employees and causes unnecessary stress on everyone involved. According to editorial advisor Vonna Laue, a CPA and the West Region Director of Capin Crouse LLP:
January 16, 2014
Reader: What about a one-time donation of only $10?
We recently fielded this question from a church administrator in Virginia:
Is there a minimum gift amount for which a contribution statement must be issued? For instance, if someone visited the church one Sunday and dropped a $10 check in the offering plate, is the church obligated to send a statement?
Churches typically face this question in January, but also may encounter it throughout the year if they issue regular quarterly giving statements.
We did some research on this administrator's question. Attorney Frank Sommerville, an Editorial Advisor for Christianity Today's Church Law & Tax Group, provides this response:
December 16, 2013
The IRS recently announced the new standard mileage rates for 2014. The reimbursement rate for business mileage is .5 cents less than the 2013 rate.
Effective January 1, 2014, the standard mileage rates for the use of a car, van, pickup, or panel truck will be:
December 12, 2013
Several tax-related questions a church must answer before moving forward.
Q: I'm a pastor of a local church and have some questions about groups and individuals that come to the church to do musical performances. I'd like to know what our requirements are as a church regarding the legal and tax requirements. For example:
December 10, 2013
Your employees will thank you.
The best way for ministers to handle their ministry-related business expenses is to have their employing church adopt an accountable expense reimbursement arrangement. An accountable arrangement is one that meets the following four requirements: (1) only business expenses are reimbursed; (2) no reimbursement without an adequate accounting of expenses within a reasonable period of time (not more than 60 days after an expense in incurred); (3) any excess reimbursement or allowance must be returned to the employer within a reasonable period of time (not more than 120 days after an excess reimbursement is paid); (4) an employer's reimbursements must come out of the employer's funds and not by reducing the employee's salary. Under an accountable plan, an employee reports to the church rather than to the IRS. The reimbursements are not reported as taxable income to the employee, and the employee does not claim any deductions. This often translates into significant tax savings for the employee.
How to establish an accountable reimbursement arrangement
November 26, 2013
Is your church ready?
The recent temporary fix on Capitol Hill helped the government avoid defaulting on its debt obligations. Republicans and Democrats now continue discussions about a fiscal budget, and with funding still in place for the Affordable Care Act, its implementation remains on track.
Churches and church leaders need to be ready for the Act. Enrollment began this month and a mid-December deadline for 2014 coverage looms. Even if a church isn't required to offer coverage because of its size, its pastors and employees are mandated to obtain it through other options. The upcoming December edition of Church Finance Today provides a quick review of those other options—don't miss this chance to share this information with those who need it.
November 25, 2013
Richard Hammar offers key points regarding Wisconsin judge's ruling.
UPDATE (12/2/13): Below are five immediate takeaways from Richard Hammar on the November 22, 2013, ruling on clergy housing allowances by a federal judge in Wisconsin. Rich goes deeper on these five, plus five more, in the January/February issue of Church Law & Tax Report.
On November 22, 2013, federal judge Barbara Crabb from the Western District Court of Wisconsin (a President Carter appointee) struck down the ministerial housing allowance as an unconstitutional preference for religion. The ruling was in response to a lawsuit brought by the Freedom From Religion Foundation (FFRF) challenging the constitutionality of the housing allowance and the parsonage exclusion.
Here are five things to note about this ruling:
October 31, 2013
Tax law suggests one church may need to rethink its approach.
Q: A church member allows us to park our buses at his business. We used to pay $200 a month for this service. In the past we have given this church member a letter indicating a donation of $2,400 per year, which he could use as a charitable contribution. Our question is, "What is the proper method to handle this?"
A: The contribution of services is not tax deductible. You may give him a letter thanking him for his contribution.
For more help with charitable contributions, check out chapter 8 of Richard Hammar's 2013 Church & Clergy Tax Guide.
October 24, 2013
Providing simple reminders can help ensure tax deductibility of donations for churchgoers.
A number of tasks need to be done before the end of the year, but there's one that can easily be done with the handy tool of the church bulletin or newsletter: Include information that will help donors ensure the tax deductibility of their charitable contributions.
Richard Hammar recommends that churches start by doing the following:
To avoid jeopardizing the tax deductibility of charitable contributions, churches should advise donors at the end of 2013 not to file their 2013 income tax returns until they have received a written acknowledgement of their contributions from the church. This communication should be in writing. To illustrate, the following statement could be placed in the church bulletin or newsletter during the last few weeks of 2013, or included in a letter to all donors:
IMPORTANT NOTICE: To ensure the deductibility of your church contributions, do not file your 2013 income tax return until you have received a written acknowledgment of your contributions from the church. Some of your contributions may not be tax-deductible if you file your tax return before receiving a written acknowledgement of your contributions from the church.
Churches then can go one step further with another simple tactic: Providing a page of information between now and the end of the year regarding the most common questions about donations, documentation requirements, and deductibility. The 2014 Charitable Contributions Bulletin Inserts by Richard Hammar is designed as a one-page summary explaining the rules of most importance to church members and can fit easily inside church bulletins, newsletters, or contribution statements.
Richard R. Hammar is an attorney, CPA, and author specializing in legal and tax issues for churches and clergy. He is a graduate of Harvard Law School, and attended Harvard Divinity School. He is the author of several books, including Pastor, Church & Law, the annual Church and Clergy Tax Guide, Reducing the Risk, the biannual Compensation Handbook for Church Staff, and the Essential Guide to Copyright Law for Churches. He is also senior editor of the Church Law & Tax Report and Church Finance Today newsletters. For more information, visit YourChurchResources.com.
October 22, 2013
Attorney Frank Sommerville walks churches through the next two years of changes.
Q: What are some provisions of the Affordable Care Act that take effect in 2013 and 2014 that churches should be aware of?
A: Well, the biggest provision that affects 2013 is going to be changing your cafeteria plan limit for medical expenses to $2,500. But the really big problem is planning in 2014 for 2015, because all portions of it go into full effect for employers on January 1, 2015.
Small churches are going to be okay if they have less than 50 full-time equivalent employees. And there are regulations and tests for that. But it's those that have 50 or more full-time employees that have to be careful about defining who is a full-time employee, because it's not a definition that's used anywhere else. And if you have 50 or more full-time equivalents, you have to provide access to insurance.
In testing for full-time employees, the statute uses 30 hours per week as fulltime.
The regulations have created three periods. There is a compliance or testing period. There is an administrative period. And then there's a stabilization period.
October 17, 2013
If money is collected and distributed by the employing church, it may be taxable income.
Editor's Note: The month of October is Pastor Appreciation Month. As you consider how to celebrate the many benefits your pastor brings to your church, consider if the gifts you're giving count as taxable income.
Some church members give their pastor, or other church employee, a personal gift on special occasions such as a $20 bill enclosed with a birthday card. These personal gifts may be treated as nontaxable gifts by the pastor because they were not distributed by the employing church.
On the other hand, when a church collects a love offering, and informs the congregation that their contributions will be receipted by the church, this requires the individual offerings to be treated as a single distribution by the church. This triggers the rule requiring distributions by employers to their employees to be treated as taxable compensation.
October 15, 2013
Failure to file income tax returns can get new ministers into hot water.
Ministers—especially new ones—often fail to file income tax returns. It's a common problem, because churches are not required to withhold either income taxes or Social Security taxes from the wages of ministers who are performing ministerial services. This occurrence takes place for two main reasons:
• Ministers are classified as self-employed by the tax code for Social Security purposes (they pay the self-employment tax in lieu of having Social Security and Medicare taxes withheld from their wages by their employing church), and
• The tax code exempts the wages of ministers from income tax withholding.
Unless they elect voluntary tax withholding, ministers are required to prepay their federal income taxes and self-employment taxes using the estimated tax procedure. This requires the minister to estimate his or her income taxes and self-employment taxes for the year and pay one-fourth of this amount quarterly.
October 2, 2013
Even as this "shutdown" unfolds, payments and paperwork are still due.
Editor's Note (10/17/2013): Congress passed a bill last night that ended the shutdown. President Obama signed the bill ahead of the default deadline that loomed at 11:59 p.m.
Due to the lapse in federal government appropriations (the so-called "government shutdown"), substantial portions of the Internal Revenue Service are closed for business. This closure does not, however, impact any due dates or obligations required under the law. The closure does, however, severely impact the ability to contact the IRS and resolve issues.
The IRS has announced, "While the government is closed, people with appointments related to examinations (audits), collection, appeals or Taxpayer Advocate cases should assume their meetings are cancelled. IRS personnel will reschedule those meetings at a later date."
In the event that an organization has a scheduled meeting or examination pending, it's highly recommended that the organization, under the advice of its tax counsel, attempt to contact the appropriate IRS officials about the meeting or examination and diligently document all such attempts.
Following is an excerpt of a statement published by the IRS related to the government shutdown:
September 5, 2013
Why the receipt value of a donated good can't go on a donor's contribution statement.
Q: I occasionally have a church member who donates something the church needs. The member then gives me a receipt for the item purchased and asks me to put it on their giving statement. Is this allowed?
A: No, it cannot go on the member's cash contribution receipt because the member did not contribute cash. The member is allowed a noncash deduction for the fair market value of the item.
Instead of this approach, I suggest that the church reimburse the member in cash for the item. If the member chooses to endorse the check back to the church, then the member has made a cash contribution.
For more help with charitable contributions, including donated goods, check out chapter 8 of Richard Hammar's 2013 Church & Clergy Tax Guide.
August 27, 2013
Be aware of how the IRS views aid to employees' family members.
Q: A pastor passes away. The church wants to give the widow a small amount of monthly income for the remainder of the year. How is this gift treated from a tax standpoint?
A: It is best to treat this as taxable income in recognition of the pastor's services. Churches cannot make nontaxable "gifts" to persons, although they can distribute funds for charitable or benevolent purposes (it is unlikely that a pastor's spouse would qualify for this unless the spouse is destitute).
I provide specific guidance on employer-provided relief to employees and family members of employees on pages 407 and 408 of the 2013 Church & Clergy Tax Guide. This guidance includes the specific criteria that must be met in order for the IRS to consider assistance to be benevolence, rather than taxable income.
August 15, 2013
Potential tax pitfalls can trip up a seemingly straightforward arrangement.
Q: We have several groups that call and ask to use the church building for meetings. If we set a price for rental, is that taxable income? If we suggest a donation or just ask for a tithe off their offering, does that affect our tax status? Also, what are things that we need to be careful with in having other groups use the building?
A: The payments may or may not be taxable depending on the detailed facts of the arrangement. You should check with a competent tax adviser. Also, do not forget to check on the property tax implications. Any use by an outside group can cost the property tax exemption in many states.
To your last question, you should require a written lease agreement for all outside groups.
Take a quiz for help in determining if your church is prepared to share its property. To learn more, Managing Church Facility Use offers guidance in developing policies and procedures that make facilities available for additional use, and yet keep all of its assets protected.
July 23, 2013
Why an accountable reimbursement plan is critical for every church.
Q: I need help with a question regarding money requested for our Deaf Church Pastor for car repairs. The Deaf Church Committee voted to reimburse him for the car repairs but since this is not an actual church expense, it seems it should be considered a gift, and therefore taxable income. Their position is that it is a reimbursement and therefore not taxable. Help?
A: The answer largely depends on whether your church already has adopted an accountable reimbursement plan. This explanation on Page 332 of the 2013 Church & Clergy Tax Guide explains how an accountable reimbursement plan works:
July 1, 2013
What does starting tax reform as a "blank slate" mean for your church?
Senate Finance Committee Chairman Max Baucus and Ranking Member Orrin Hatch publicly announced Friday their much-anticipated plan for next steps on comprehensive tax reform. The announcement and a related letter to Senate colleagues made clear the Finance Committee's strategy to start tax reform from a "blank slate," meaning "a tax code without all of the special provisions in the form of exclusions, deductions and credits."
While this approach may be one way to achieve a "simpler, more efficient and fairer tax code" as suggested by Senators Baucus and Hatch, it does put at risk the charitable contribution deduction, which is vital to religious and other nonprofit organizations. As expressed in my comments submitted to the House Ways & Means Committee in February 2013, "ECFA is deeply concerned by any tax reform proposals that would reduce or eliminate the value of the charitable contribution deduction under section 170 of the tax code, which has traditionally been regarded as the most effective policy tool at the government's disposal to encourage individual charitable giving."
June 12, 2013
Such a move might trade one set of potential problems for another.
Mike Huckabee raised an intriguing, provocative question on Monday while addressing pastors ahead of the Southern Baptist Convention annual meeting in Houston: Should churches reject their tax-exempt status as a way to break free of government oversight and restriction?
According to the Associated Baptist Press, the former Arkansas governor and presidential candidate said the unfolding Internal Revenue Service scandal should give pastors and church leaders pause:
"The recent revelations that the Internal Revenue Service has been targeting people of faith--people who are conservative, people who are pro-Israel--and have been picking out the parts of belief and speech and faith that government seems to approve and that which it doesn't approve has brought up a very important reality that I think, sooner or later, as believers, we need to confront," said Huckabee, host of a top-rated Fox News Channel weekend program.
June 11, 2013
How clergy should handle multiple residences after the Driscoll decision.
Q: I know the recent Driscoll decision means a pastor can't claim two homes for his or her housing allowance. In a situation where a pastor answers a call in one state, but his or her family stays behind to sell the current residence and to allow the kids to finish school, which home should be used for the pastor's allowance provided by the new church?
A: As of March 2013, the regulations allow the housing allowance for the primary residence of the clergy. As a result, the expenses related to the place where the minister primarily resides qualify for the housing allowance. In this case, the minister's housing expenses at his new place of call will qualify for the housing allowance. The expenses related to the old home are not counted after the minister relocates.
For more help with clergy housing allowances, check out chapter 6 of Richard Hammar's Church & Clergy Tax Guide.
May 30, 2013
A common practice may trigger unexpected paperwork.
Q: When we have youth from our high school youth group do childcare for church events, do they need to be put on the payroll? In the past we have just paid them from the ministry fund they are babysitting for.
A: Yes. Also, your church is covered by minimum wage and child labor laws. You need to make sure you are not violating any of the laws related to employing youth.
May 7, 2013
A prime outreach opportunity raises financial, tax considerations.
Q: Our church's new community center includes a gym, and a coffee shop for people to fellowship and drink coffee while watching their younger children on our playground just outside the building. We also host a church basketball league involving other churches. All the fees from the basketball league and funds from the sale of coffee will be used to pay for supplies, electricity, janitorial supplies, and so on, for the events we plan. All money goes right back into our ministry for which the building is intended--to reach non-Christian families in a recreational environment.Here are my questions:
It does not matter for tax purposes how the funds are spent. The only thing that matters for taxes is the transaction where the church received the funds. Churches may operate youth athletic leagues within its exempt purposes, so all the fees received from operating the leagues are exempt from federal income taxes. If the church allows another entity to operate the leagues, then the proceeds will likely be taxable.
May 2, 2013
How churches might use this nonprofit-sector calculation.
How much is a volunteer's time worth? About $22.14 an hour, according to a new Independent Sector calculation.
The organization uses Bureau of Labor Statistics information, looking at payroll averages of nonfarm, nonsupervisory labor and adding a percentage for benefits. Although it's an imperfect measurement, it can help nonprofits determine some dollar amounts associated with the hours of volunteer time provided to them during the year. Rick Cohen from Nonprofit Quarterly further explains:
April 25, 2013
Tight lending conditions may renew interest on a wider scale.
Editor's Note: This is the final post in a guest series from Dave Travis' book, What's Next?:2012 Edition. The first posts addressed church finances, financial accountability, the use of interns and residents, and outsourcing work. Travis is CEO of Leadership Network.
Church bonds have been around for many decades. Most of the time, they proved to be a reliable system of financing construction-type projects. Occasionally, a prominent scandal or failure would decrease enthusiasm for them.
Bond financing also tends to rise when banks set tight conditions and higher interest rates. For the first part of the last decade, credit availability was widespread. But things have changed.
April 17, 2013
Tennessee megachurch challenged decision affecting part of its property.
On the heels of last week's news regarding an Indiana study that showed one in four government leaders favored payments of some type by churches in exchange for their tax-exempt statuses comes this online column by Peter J. Reilly of Forbes.
Reilly recaps a recent Tennessee appellate court decision regarding property taxes assessed between 2004 and 2008 on a portion of property owned by Christ Church Pentecostal of Nashville. Tennessee's State Board of Equalization and its Assessment Appeals Commission contended the megachurch's bookstore and cafe did not qualify for property tax exemption, and its fitness center qualified for only a 50-percent exemption.
The reason: Assessors believed the bookstore and cafe went beyond religious purposes, while the fitness center, by offering memberships to the general public, went partially beyond those purposes. The church disagreed; in court documents, the church's senior pastor explained the crucial role the bookstore and cafe and fitness center played with creating what is known in architectural design circles as third place spaces for the surrounding community, particularly its immigrant and low-income populations.
April 9, 2013
‘Sobering message’ for tax-exempt charities, study director says.
A 2010 survey of local government leaders in Indiana shows one in four want churches to make “payments” or provide services in exchange for receiving tax exemptions on their properties.
The survey results, released for the first time on Monday, incorporated responses from 1,150 local government officials, including mayors, county auditors, and county commissioners. "The results of our survey send a sobering message to charities that are already seeing their tax status challenged in several states," said Kristen Grønbjerg, the study’s director, in a press release.
The Indiana Nonprofits: Scope and Community Dimensions project specifically focused on PILOTS—“payments in lieu of taxes"—and SILOTs—“services in lieu of taxes.” Some municipalities use PILOTs and SILOTs to generate additional revenue from tax-exempt entities. Many towns, cities, and counties continue to see their coffers languish as tax appraisals for commercial and residential properties remain below once-peak levels and as sales tax collections remain volatile, dependent on the employment, pay raises, and confidence of consumers.
April 8, 2013
What church leaders should watch out for this year.
The IRS recently released its annual list of the "dirty dozen" tax scams. Knowing about these scams can help church leaders avoid falling into these traps.
Identity theft and phishing are still the top two, and many of the same scams have stuck around and are important to review. The only scam to miss the transition from last year's list is the tenth-listed one, "Abuse of Charitable Organizations and Deductions."
April 4, 2013
Intern programs meet current church needs--and build for the future.
Editor's Note: This is the third in a series of guest posts from Dave Travis' book, What's Next?:2012 Edition. The first post addressed church finances and the second post addressed financial accountability. Travis is CEO of Leadership Network.
Where will all the staff come from in the future? Most likely a combination of places, as always. But one of the key development arenas will be structured intern and residency programs, targeting younger generations who come forward to ask for practical training.
This trend mirrors what is going on in other corporations. Not-for-profits and other institutons are mobilizing interns for a variety of tasks. Additionally, a growing number of high schools are requiring low level experiences that are often called internships.
The internship has somewhat replaced the part-time job as a combination resume builder and experience base to pad school entrance and corporate job applications.
Churches have had internships for some years. What's new is seeing them as strategic for development of new staff and Kingdom workers for other contexts. We've seen the same development with "pastoral residents programs," that act as finishing schools with longer time commitments and stipends.
March 28, 2013
Churches must handle finances in "the light of day."
Editor's Note: This is the second in a series of guest posts from Dave Travis' book, What's Next?:2012 Edition. The first post addressed how much--or little--the economy is to blame for church failures. Travis is CEO of Leadership Network.
Here is the issue: Do church leaders make decisions and handle money "in the light of day," or do things happen behind closed doors?
The degree to which this is an issue can vary, but it will increase in importance as an authenticator--not only for prospective members, but for the community at large and its local government.
Once upon a time, church members simply trusted their leaders. Some still do. But in the world we now inhabit, trust depends to some extent upon reasonable transparency. In the future, it could become a critical issue.
U.S. churches exist in a legal gray area. They are required to follow not-for-profit regulations in many areas, without being required to file reports and returns in the way other not-for-profit organizations do. They must follow rules on political activity, compensation, insider dealings and the like, but they are still given considerable leeway in the matter of financial reporting.
Even when denominations require their churches to file reports, the results may not be shared outside denominational offices.
Going forward, we feel that voluntary transparency will bolster churches in the eyes of the public--members and outsiders alike. Younger adults will insist upon it, being accustomed to detailed reports from other charitable organizations.
Areas of impact:
March 25, 2013
Only 16 percent received an estate gift in 2011, too.
According to a new study by LifeWay Research, the majority of Southern Baptist churches believe that Christians should provide for their church in their will, but 86 percent of churches provide no help or assistance for estate planning.
In fact, 84 percent of all Southern Baptist churches receive no estate gifts in 2011, and just one percent received three or more of these type gifts.
According to Warren Peek, the president of the Southern Baptist Foundation, “Two practical steps pastors can take to cultivate this type of thinking are to put a process in place to accept and dispose of gifts of non-liquid assets and to make available information on estate planning.”
Excerpted from the March 2013 edition of Ministry Briefing, a monthly, downloadable digest of headlines for church pastors and leaders edited by Matt Steen and Todd Rhoades. Used with permission.
Go deeper on law and tax matters for estate planning and wills with the 2013 Church & Clergy Tax Guide.
March 5, 2013
Act mandates changes to FSAs, potentially affecting church cafeteria plans.
In March 2010, Congress enacted the 2,500-page Patient Protection and Affordable Care Act (the “Act” or “Affordable Care Act”) in order to increase the number of Americans covered by health insurance and decrease the cost of health care. Since being signed into law, it has been difficult for churches to navigate this new legislation, especially since new portions of the Act are being implemented each year.
In 2013, the main provision that will affect churches is the new limitation on health flexible spending arrangements under cafeteria plans. A flexible spending arrangement for medical expenses under a cafeteria plan (“Health FSA”) is health coverage in the form of an unfunded arrangement under which employees are given the option to reduce their current cash compensation and instead have the amount of the salary reduction contributions made available for use in reimbursing the employee for his or her medical expenses. The health reform legislation made the following change in Health FSAs effective for tax years beginning after 2012.
February 25, 2013
What clergy should look for in a tax preparer.
A brief Q&A recently featured in The Wall Street Journal offers tips for what to look for in a tax preparer. Many people hire someone to help them file their returns these days, the author notes, mostly because of the increasingly complex nature of the country’s tax code.
Those involved with ministry likely turn to some form of outside help for their returns. Clergy face numerous questions and decisions related to their tax status, and churches and clergy also deal with a number of complex matters, including the handling of housing allowances and the tax treatment of business expenses. Among the Journal’s tips for hiring a tax preparer, the following seemed especially insightful:
February 14, 2013
What the IRS has said about these types of contributions.
It's a common scenario at local churches across the country: A member faces a significant medical condition, racking up major debt in the process. Others at the church learn of this challenge and wish to help. Can they donate to the church, designate their gifts for that member, and still receive tax deductions for the contributions?
The Internal Revenue Service has ruled on such situations many times. Such gifts likely can be treated as deductible if (and it's a significant if) donors and churches handle them a certain way. The IRS has stated:
January 22, 2013
Several organizations are exempt from this reporting requirement
A church, an interchurch organization of local units of a church, a convention or association of churches, an integrated auxiliary of a church (such as a men's or women's organization, religious school, mission society, or youth group), and certain church-controlled organizations (see Revenue Procedure 86-23). The term "integrated auxiliary" is defined fully in Chapter 12, section A.4, in my annual tax guide, the 2013 Church & Clergy Tax Guide.
January 17, 2013
A snapshot of how the new tax laws will affect you and your church.
• The lower income tax rates for most Americans that were enacted by Congress in 2001.
• The lower capital gains and dividends rates for most Americans.
• The enhanced child tax credit.
• Marriage penalty relief.
• Enhancements in the dependent care credit and earned income tax credit.
• Enhancements in Coverdell Education Savings Accounts.
• Expansion of the credit for employer-provided educational assistance.
• Extension of the American Opportunity Tax Credit.
• Increased exemption amounts in computing the alternative minimum tax.
• An extension of the $250 above-the-line tax deduction for teachers and other school professionals for expenses paid or incurred for books and equipment used in the classroom.
• The deduction of state and local general sales taxes. And,
• Extension of tax-free distributions from individual retirement plans for charitable purposes.
January 8, 2013
Qualifying direct charitable IRA distributions made in January can count toward 2012.
The so-called “fiscal cliff” law just passed by Congress and signed by President Obama, formally known as the “American Taxpayer Relief Act” (the Act), includes a little-publicized provision providing a very short window of opportunity for eligible taxpayers to make direct charitable distributions from their IRAs in January of 2013 and count them as made on December 31, 2012.
The Act also contains a relief provision for eligible taxpayers who took distributions from their IRAs in December of 2012 (not knowing that the direct charitable IRA distribution exclusion would be retroactively renewed). The Act allows those taxpayers to exclude those distributions from their taxable income (within the prescribed limits) so long as they transfer the distributed funds to a qualified charity by the end of January 2013.
January 3, 2013
Fairly rewarding an employee's work--when that work is owned by the church.
Q: Can we pay a ‘bonus’ to a pastor or worship leader for a successful derivative work (i.e. a worship song or a book based on sermons) they created and the church owns?
A: Yes, as long as the overall compensation of the employee is reasonable. A church cannot compensate any of its employees more than a reasonable amount. A reasonable amount is determined by experts using a facts and circumstances test. This test looks at the totality of the circumstances and compares similarly situated employees working for similar employers. If an employee creates something of great value, then it is reasonable to compensate that employee based on the increased value to the employer and not just the services performed.
December 4, 2012
Panel offers 43 recommendations, sets 2013 release for political report.
An independent commission formed by the Evangelical Council for Financial Accountability at the request of Sen. Charles Grassley, R-Iowa, in January 2011 issued its first public findings today through a 91-page report that is available for free download.
The report touches on key areas Grassley asked the commission to examine, including pastoral housing allowances, compensation and excess benefit transactions, examinations of church leaders, donor accountability, and the possible formation of an IRS advisory committee for religious organizations. The commission said it will release separate findings on political activity by churches and religious organizations next year.
"The vast majority of religious and other nonprofit organizations in America operate with a genuine commitment to financial integrity and appropriate accountability," wrote Michael E. Batts, the commission's chair, in the report's opening letter. "Occasionally, we see a few exceptions."
Through public input, as well as the assistance of 80 legal and financial leaders representing a variety of faith traditions, including Richard Hammar, senior editor of Church Law & Tax Report, Batts says the commission formed 43 recommendations for Grassley and his staff to review.
"While self-regulation is a key element of addressing concerns about misconduct, critics
of self-regulation rightfully point out that non-compliant outliers have little interest in self-regulation," wrote Batts, managing partner of Batts Morrison Wales & Lee, P.A., and an Editorial Advisor for Church Law & Tax Report and ManagingYourChurch.com. "That’s where effective administration of existing law must come in, together with education about the law."
Watch for more articles regarding the commission's findings and recommendations in coming weeks on ManagingYourChurch.com.
December 4, 2012
Yes—if specific factors are met.
Q: I realize love offerings need to be included in a pastor’s taxable income, however, should an individual receive tax-deductible credit for their gift if the church board authorized the collection? Also, what if an individual gives a love gift to a pastor on their own during the year by making the check payable to the church?
A: I address love offerings on page 177 of my annual Church & Clergy Tax Guide. Your specific questions bring two responses to mind:
November 26, 2012
Most travelers will get a penny more per mile.
Last week, the IRS announced the new standard mileage rates for 2013. The reimbursement rate for business mileage increased 1 cent over 2012.
Effective Jan. 1, 2013, the standard mileage rates for the use of a car, van, pickup, or panel truck will be:
• 56.5 cents per mile for business miles driven
• 24 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations
Full information on these and other changes can be found on the Internal Revenue Service site.
For comprehensive information related to this and other key tax changes for next year, pre-order the 2013 Church and Clergy Tax Guide.
November 20, 2012
Summing up the housing allowance exclusion
This article is adapted from Richard Hammar’s Essential Guide to Money for Church Boards eBook. For this eBook and other cutting-edge eBooks for church administrators, board members, and clergy, view our online catalog.
The most important tax benefit available to ministers who own or rent their home is the housing allowance exclusion.
To the extent the allowance represents compensation for ministerial services, is used to pay housing expenses, and doesn’t exceed the fair rental value of the home, including utilities, ministers who own their home do not pay federal income taxes on the amount of their compensation that their church designates in advance as a housing allowance. Housing-related expenses include mortgage payments, utilities, repairs, furnishings, insurance, property taxes, remodeling expenses, and maintenance.
For ministers who rent a home or apartment, all of the above is true, with the only difference being the allowance is used to pay rental expenses, such as rent, furnishings, utilities, and insurance.
November 8, 2012
How to handle these well-meaning cash gifts.
Q: I recently read an article about when churches give Christmas gifts and have a question. If a church takes up a love offering at Christmas for its pastor and staff, is that reportable as income? This would not come from budgeted funds, and there is no predetermined amount. It would be miscellaneous, free-will donations made by members of the congregation. The church would simply tabulate the funds and write the checks. Is this reported as taxable income?
A: I cover the topic of “love offerings” on Page 177 of the 2012 Church & Clergy Tax Guide:
November 1, 2012
Key reminders you can deliver through the church bulletin.
As the calendar flips to November, it's a good reminder of the many tax details that churches must track, especially on behalf of those who faithfully give to the church throughout the year. Churches must properly document donor contributions, which includes a statement on receipts regarding whether any goods or services were provided in consideration for the contributions.
To avoid jeopardizing the tax deductibility of charitable contributions, churches also should advise donors at the end of 2012 not to file their 2012 income tax returns until they have received a written acknowledgement of their contributions from the church. This communication should be in writing. To illustrate, the following statement could be placed in the church bulletin or newsletter during the last few weeks of 2012, or included in a letter to all donors:
October 30, 2012
Two steps to help ease worry if your tax return is selected for examination.
Most church staffs dread an audit. Disturbing questions surround the experience: Does the IRS distrust us? Will we have to pay more out of our already slim budget? Thankfully, much of this worry is unwarranted. Most church tax returns are accepted as filed. Tax returns the IRS ends up selecting for an examination (or audit) are chosen based on a high probability for error or discrepancies among forms. An examination of your return does not suggest a suspicion of dishonesty. Many audits are closed without any change in reported tax. Some even result in refunds. Knowing what to expect if your church is audited can help relieve anxiety.
What to expect
If your return is selected for examination, you will be contacted by the IRS and asked to assemble records supporting the items on your return under investigation. The IRS determines the place and method of examination, but it will consider your wishes. The information exchange may be conducted by correspondence, or it may take place in your home, your place of business, an IRS office, or the office of your attorney or accountant.
During the audit, you may act on your own behalf. Otherwise, an attorney, CPA, enrolled agent (someone enrolled to practice before the IRS), or the person who prepared and signed your return may represent or accompany you. If you choose this option, you must furnish your representative with power of attorney (Form 2848).
Once the examination is complete, you will be advised of any proposed change in your taxes and the reasons for them. You will be asked to sign a form indicating that you agree with the changes. You may pay any additional tax at this time.
October 25, 2012
Key best practices every church should follow.
Editor’s Note: Frank and Elaine Sommerville, editorial advisors for ManagingYourChurch.com, presented some of this material on Monday at The Ultimate Financial and Legal Conference in Arlington, Texas.
I. Thou shalt not allow the church’s intellectual property to be used for personal purposes.
Rule: Under the work for hire doctrine, any property developed within the scope of the job duties of an employee is the property of the employer.
Practice Tip: An intellectual property policy should be carefully crafted and adopted. It should address all areas of concern, such as curriculum, sermons, and music.
II. Thou shalt not have a substantial amount of revenue derived from unrelated business income.
Rule: An organization may have some unrelated business income, but too much can endanger the exempt status of the church.
Unrelated business income is generated from activities that are:
1. Regularly carried on.
2. Not substantially related to exempt purposes.
3. Trade or business.
Practice Tip: The rules are complicated and there is an exception to every exception. Each activity must be separately analyzed. The commercial manner in which an activity is conducted can create unrelated business income even if the activity seems to be related.
October 16, 2012
Two options exist for ministers who can't pay.
Many pastors have been audited by the IRS and assessed several thousands of dollars of taxes and penalties but have no prospect for paying their bill. What can be done if you find yourself in this situation? There are two possibilities: offers in compromise and installment agreements.
Offers in compromise
An offer in compromise (OIC) is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. Absent special circumstances, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement.
Taxpayers should be wary of promoters’ claims “that tax debts can be settled through the offer in compromise program for ‘pennies on the dollar.’” In most cases the IRS will not accept an OIC unless the amount offered by the taxpayer is equal to or greater than the reasonable collection potential (RCP). The RCP is how the IRS measures the taxpayer’s ability to pay. It includes the value that can be realized from the taxpayer’s assets, such as real property, automobiles, bank accounts, and other property. The RCP also includes anticipated future income, less basic living expenses.
October 11, 2012
As Election Day nears, the church-and-politics debate heats up.
With Election Day less than a month away, discussion about the role of churches in the political realm remains robust across the country.
Last week's "Pulpit Freedom Sunday," conducted by the Alliance Defending Freedom, drew nearly 1,500 participating churches, the largest number since its inception in 2008. Our colleague Skye Jethani has a thoughtful essay on our sister site Out of Ur about religious liberty and gay rights. And the Pew Forum on Religion and Public Life last week issued an updated guide to churches and political activity.
We've covered the politics of religion, the debate on churches and political activity (including a movement of churches in Maine to raise money for the political action committee opposing a same-sex referendum in that state on this November's ballot), and the 13 benefits of tax exemption that churches should weigh while deciding how political to get.
The topic remains visible. And ripe for debate.
Now it's your turn. As heated races at the local, state, and federal level come down to the wire, what is your church doing this political season? Should churches actively lobby on legislative matters? Officially endorse or oppose candidates at the pulpit or through church communications, such as bulletins, newsletters, websites, and social media?
Or should churches take neutral positions on legislation? Remain silent regarding candidates?
Is there a middle ground?
October 2, 2012
Petition by Driscoll denied by High Court.
The U.S. Supreme Court denied a petition on Monday to take up an appeal by a minister who claimed an income tax exclusion for two homes.
In late 2010, the U.S. Tax Court ruled that federal tax law does not limit the number of homes for which a minister can receive special, tax-free benefits. The federal government appealed the Tax Court decision, and the 11th Circuit Court of Appeals reversed the Tax Court earlier this year. The appeals court said the clergy housing exclusion is limited to a single home.
The minister, Philip Driscoll, then filed a petition to have the case considered by the U.S. Supreme Court. The denial issued on Monday by the Supreme Court leaves the issue where the IRS and the vast majority of clergy have understood it to be for decades–that the clergy housing exclusion is limited to a single home.
This guest post first appeared in The Nonprofit Watchman, a free e-newsletter published by Batts Morrison Wales & Lee, P.A., that covers significant state and federal developments for nonprofits and their executives. Reprinted with permission.
For a comprehensive explanation of the housing allowance and how it works, check out Chapter 6 of Richard Hammar's 2012 Church & Clergy Tax Guide.
September 11, 2012
Event now will take place Wednesday, September 19.
Due to illness, Richard Hammar’s “Prevent Payroll Mistakes—What Churches Need to Know” webinar, which was originally scheduled for tomorrow (Wednesday, September 12, 2012), has been rescheduled.
In an effort to best serve you, we have rescheduled this free webinar to 11 a.m. (Central Time)/12 p.m. (Eastern Time) on Wednesday, September 19, 2012. Our hope is that this will accommodate as many registrants as possible. For those who can’t make the event because of this change, you will still receive free access to the recorded version of the webinar and the webinar handout. We will send out information regarding how to access the recorded webinar within 72 hours of the webinar’s conclusion next week.
You do not need to do anything in order to remain registered for this free event and its new date. Watch for an automatic notification from GoTo Meeting that confirms the new date for the webinar. This will be all that you need to log in and join us next week or to receive notification when the recorded version becomes available.
While this solution offered the least disruptive approach possible, we recognize the change still may create an inconvenience for some, and may cause a few of you to miss the presentation due to other scheduled commitments. We are very sorry for this.
Again, please watch for the GoTo Meeting e-mail regarding the new date of 11 a.m. (Central Time)/12 p.m. (Eastern Time) on Wednesday, September 19, 2012, for the “Prevent Payroll Mistakes—What Churches Need to Know” webinar with Richard Hammar.
Haven't registered yet? Seating is limited, so don't miss out.
We look forward to seeing you next week!
August 30, 2012
A change is allowed, but note one important limitation.
Q: Our church designates, in writing, a housing allowance for our pastor on an annual basis (usually late November for the upcoming fiscal year—for example in November 2011 we submitted our proposed budget for 2012).
We now have a member who wants to modify the pastor's housing allowance and give the pastor an additional amount and designate it as the 2012 housing allowance. He referenced an auditor from a tax service about this issue and was told there would be no problem (tax wise) if our church decided to "adjust" the pastor's housing allowance in October for fiscal year 2012.
If we record this action in our business meeting minutes for October 2012 and increase the housing allowance for 2012 (about double the designated amount), are we within the tax laws?
A: Rich Hammar addresses this question in the Church & Clergy Tax Guide:
August 27, 2012
What church leaders should know in an election year.
We've recently looked at the political activity of churches. In the upcoming September/October 2012 edition of Church Law & Tax Report, Rich Hammar revisits what the Internal Revenue Service says is--and isn't--allowed by churches when it comes to political candidates running for office:
The income tax regulations interpreting the limitation on political campaign intervention provide that neither a church nor any other organization can be exempt from federal income taxation if its charter empowers it “directly or indirectly to participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of or in opposition to any candidate for public office.” The regulations further provide that:
August 16, 2012
A recent Tax Court decision underscores the critical steps churches must take.
In the August 2012 edition of Church Finance Today, Richard Hammar examines a recent, high-profile case involving a couple whose substantial contributions to a church were denied tax deductibility by the Internal Revenue Service:
A married couple (the “taxpayers”) timely filed their 2007 income tax return. On Schedule A they claimed a deduction of $25,171 for charitable contributions made by cash or check. Most of the contributions were made by check to their church. Except for five checks totaling $317, the checks were for amounts larger than $250.
In 2009 the IRS sent a notice to the taxpayers disallowing their charitable contribution deduction for 2007.
July 26, 2012
David Middlebrook explains the benefits of a properly conducted report.
Q: At the end of every year, our board discusses the salary for our ministers for the upcoming year. We would like to compensate our ministers for all they do for our church, and some have suggested we get a compensation study done on our senior pastor and others at the executive level. What is a compensation study?
A: A compensation study, when properly undertaken, is an independent report on an organization’s total compensation of certain individuals, usually those at the executive level. It is performed by a compensation committee or a group of the board of directors, neither of which would include the subject of the study or members of the subject's family. This group or committee also should consist of only non-disqualified persons.
Total compensation includes both cash compensation (which is salary, bonus, and housing allowance) and non-cash compensation (which is everything else). Properly done, the compensation study should serve the organization for at least a few years, barring significant changes in the size or finances of the organization or its compensation structure. The process for determining the reasonableness of compensation is much like that of valuing an item of property.
July 19, 2012
Important information to address this common tax question.
Q: Can a church give a cash benevolence gift to an employee? And is it taxable income?
A: Yes and yes.
For better or worse, churches seem to attract needy employees. They may need their car repaired or have serious uninsured medical expenses. The Internal Revenue Code requires all benevolence payments provided to employees be taxed. The church must add the amount of the benevolent payments to the employee's Form W-2, and if nonclergy, withhold all payroll taxes like the payment was wages. It makes no difference if the payment is direct or indirect, like to the employee's doctor.
July 2, 2012
One survey shows many say no; what the law says about political activity.
On Father’s Day, numerous churches in Maine used their offering time to take up collections for a political action committee (PAC) campaigning against a same-sex marriage referendum on that state’s ballot.
An article on ChristianityToday.com points out such an activity is permissible, and won’t jeopardize a church’s tax-exempt status if conducted within reason. But many church leaders are often confused about what’s allowed when it comes to politics. The Internal Revenue Service explicitly prohibits church support or opposition for political candidates in races; however, churches may lobby for or against legislation, including referendums on ballots, although the IRS is vague about how much or little it will permit.
Our nation celebrates its independence this week, and November seems far away, yet we already find ourselves in a heated political season. A contested race for the White House is underway, as are competitive races for congressional seats. Many states will have referendums covering a variety of social and moral issues, including abortion, religious liberty, and marriage. In some form or fashion, churches will see spirited, and perhaps contentious, political debate in their communities.
What role, if any, should they play in that dialogue?
June 26, 2012
The plate reigns, but electronic options are gaining traction.
The graphic above, which appears in the July edition of Church Finance Today, shows the ways that people give to their churches, based on results from the 2012 State of the Plate giving survey sponsored by Christianity Today, Maximum Generosity, and ECFA.
The offering plate tops the list, but electronic giving options, such as automatic withdrawal, online giving, and cell phone giving apps, are gaining ground. Enough so that Brian Kluth, founder of Maximum Generosity, predicts one or more e-giving options will surpass the envelope packet--a mainstay for years at many churches--this year.
How is your church collecting tithes and offerings? Are electronic options making the same advances in your congregation?
May 15, 2012
Christianity Today receives 43 honors for its print and online publications.
Today's post is a little different than the norm because we have some good news to share.
ManagingYourChurch.com received a top honor Friday from the Evangelical Press Association during the organization's 2012 conference.
The site received the Award of Excellence--the highest possible--in the Christian Ministry/Digital category. Judges said: "Top notch writing and editing; touches on SO many relevant, practical topics for church leaders—news, advice, legal, etc.; well-laid-out blog. Pleasing color palette. Easy to navigate; Follows many blog best practices, thus easy for new visitors to intuit; exceptional presentation all the way around."
ManagingYourChurch.com is owned by Christianity Today, a not-for-profit global publishing ministry. Its goal is to help church leaders keep their ministries safe, legal, and financially sound.
In all, Christianity Today sites and publications received 43 honors during the conference, including the Award of Excellence for Church Finance Today in the Newsletter category and an Award of Merit for Church Law & Tax Report.
April 26, 2012
Taxes, vacation time, and other things to clarify.
Bible college and seminary are great for a lot of things. In my experience, important skills you need to survive in an office, such as yearly budgets, business plans, and understanding a housing allowance, are not some of those things.
I love the education I received, but I am embarrassingly lost every spring when I try to do my taxes.
For rookie pastors, or for those who start a pastoral position at a new church, someone on staff will approach you within your first 30 days and start talking about things that affect your paycheck and how many days you get off for the year.
It will be tempting to not ask questions because you are intimidated or because of some silly pride that prevents leaders from asking questions. You can go that route and miss out on some deserved benefits. Or you can ask some honest questions and get clarity.
April 3, 2012
As church income and worship attendance increase, so do pay and benefits.
Editor's Note: The 2014-2015 Compensation Handbook for Church Staff is now available. This resource details pay and benefits data for 14 church positions, including two new ones—part-time musician and part-time childcare provider. Each position is analyzed based on a variety of criteria, including education, experience, church size, and geography. The resource also includes step-by-step worksheets to help churches tailor compensation based on their unique circumstances. In the weeks and months ahead, watch ManagingYourChurch.com for graphics and short articles highlighting trends and other broad developments from the latest data.
The 2012-2013 Compensation Handbook for Church Staff, Christianity Today's bi-annual survey of compensation levels based on 4,600 participating churches, shows senior pastors' salary and benefits at an average $82,938 this year. This represents a 2.7 percent increase from the $80,745 average reported in 2010.
Senior pastors rank at the top in total compensation plus benefits for church staff. (See the "Top 7 Paid Full-Time Positions in Church.")
In general, as church income and worship attendance increase, compensation and benefits also increase.
While a salary in the $80,000 range looks good on paper, actual take-home pay for pastors may be much different, perhaps far less. The average base salary of a full-time senior pastor ranges from $33,000 to $70,000. Eighty-four percent of senior pastors say they also receive a housing allowance, which accounts for $20,000 to $38,000 in added compensation.
The graphic below highlights the breakdown of salary and benefits senior pastors receive.
March 13, 2012
Study shows more churches have experienced deficit spending.
Findings from the 2012-2013 Compensation Handbook for Church Staff reveal that the overall percentage of churches operating in the black—income EXCEEDS expenses—declined in almost every region.
March 2, 2012
Watch for these warning signs as scam circulates country.
On Tuesday, we covered the latest "Dirty Dozen" tax scams the Internal Revenue Service flagged for individuals, businesses, nonprofits, and churches to avoid. Today, the IRS issued a new update regarding a specific scam circulating the country that targets senior citizens, working families, and members of churches.
The scheme carries a common theme of promising refunds to people who have little or no income and normally don’t have a tax filing requirement. Under the scheme, promoters claim they can obtain for their victims, often senior citizens, a tax refund or nonexistent stimulus payment based on the American Opportunity Tax Credit, even if the victim was not enrolled in or paying for college.
In recent weeks, the IRS has identified and stopped an upsurge of these bogus refund claims coming in from across the United States. The IRS is actively investigating the sources of the scheme, and its promoters may be subject to criminal prosecution.
And then later:
Typically, con artists falsely claim that refunds are available even if the victim went to school decades ago. In many cases, scammers are targeting seniors, people with very low incomes and members of church congregations with bogus promises of free money.
Pastors and church leaders should watch for this kind of activity in their midst. Even if no signs point to its existence, it's wise for leaders to remind church members, especially senior citizens, that any claims sounding too good to be true usually are. The IRS also offers these tips and warning signs to share:
March 1, 2012
Those who don't do it right face stiff penalties.
The recent payroll tax holiday extension keeps a 2-percent reduction for employee and clergy Social Security withholdings in place throughout 2012.
We've already covered what those rates should be on paychecks. But the reason why it is so important for churches to get all payroll withholdings--the payment of employee income and entitlement taxes--right is illustrated by the Feature Article in the upcoming March edition of Church Finance Today.
A federal court in North Carolina recently ruled that a minister met the definition of a “responsible person” under section 6672 of the tax code, and therefore the IRS could assess a penalty against the pastor in the amount of 100 percent of the payroll taxes that were not withheld or paid over to the government by the church.
February 28, 2012
The 12 illegal or false claims that churches and leaders should avoid.
Each year, the Internal Revenue Service releases the top twelve tax scams that individuals, nonprofits, churches, and businesses should watch for and avoid. The newest list, issued by the IRS this month, reveals the latest "dirty dozen":
February 21, 2012
Churches must verify employee withholdings are correct.
Congress on Friday voted to extend the payroll tax holiday through December 31, 2012, adding an extra $20 per week on average to paychecks for 160 million workers.
President Obama previously pledged to sign any extension into law once it was passed.
The payroll tax cut involves a 2-percent reduction in employee withholdings for Social Security. The holiday was originally passed toward the end of 2010 for the 2011 year; just before it expired on December 31, 2011, a temporary extension through February 29, 2012, was passed.
With the extension now approved for the remainder of 2012, employers, including churches, need to make certain they're meeting withholding requirements. Employees who are eligible for Social Security should have 4.2 percent withheld, as well as 1.45 percent for Medicare, for a combined 5.65 percent on each paycheck. Ministers are self-employed for Social Security with respect to their ministerial services, so their combined withholding rate for Social Security and Medicare is 13.3 percent.
The national deficit will grow by another $126 billion over five years as a result of the extension. Supporters of the extension said employees will not see lowered Social Security benefits in the future as a result of the reductions, although in recent weeks, debate about that has grown.
February 21, 2012
Grassley Commission Outlines Progress on Key Points
Should the IRS form an advisory committee to oversee church tax law? Is the clergy housing exclusion constitutional? To what extent should churches be accountable to the government for the way in which they operate? These are three of the seventeen issues the year-old Commission on Accountability and Policy for Religious Organizations are wrestling with.
The commission, formed last year by the Evangelical Council for Financial Accountability, is chaired by Michael Batts, the managing shareholder of Batts Morrison Wales & Lee, an Orlando-based accounting firm serving nonprofits. Batts, along with ECFA President Dan Busby, also a member of the commission, outlined the issues and touched on key points during a virtual Town Hall meeting on February 17, 2012. They covered questions such as whether legislation is needed to curb perceived abuses of the clergy housing allowance exclusion, and if rules for determining the reasonableness of nonprofit executive compensation should be tightened.
February 16, 2012
Online town hall meeting scheduled for Friday.
A little more than a year ago, Sen. Chuck Grassley (R-Iowa) asked the Evangelical Council for Financial Accountability to oversee an independent commission tasked with evaluating several financial and tax matters related to churches and nonprofit ministries. The goal: Determine whether more oversight—possibly administered through new legislation and regulation—is needed to curb any abuses and to foster clearer communication and relations between the Internal Revenue Service and religious organizations.
The formation of the Commission on Accountability and Policy for Religious Organizations came just as Sen. Grassley's office completed a three-year inquiry into the financial practices of six media ministries.
One year later, the commission is taking input from churches and ministries as it works to develop recommendations for Grassley. One method is through an online form available through March 31; the other was through a live, 90-minute town hall meeting broadcast online last week. Church leaders are invited to participate.
Among the areas the commission seeks input:
February 15, 2012
Churches will need to verify employee withholdings are correct.
Congress appeared close late Tuesday to passing an extension of the payroll tax holiday through December 31, 2012, for millions of workers. A bill may be finalized Wednesday and put before President Obama for signature by the end of the week, the Associated Press reported.
The payroll tax cut involves a 2-percent reduction in employee withholdings for Social Security. The holiday was originally passed toward the end of 2010 for the 2011 year; just before it expired, a temporary extension through February 29, 2012, was passed.
Employers, including churches, need to make certain they're meeting the requirements of the temporary extension, withholding 4.2 percent for employees who are eligible for Social Security and 1.45 percent for Medicare, for a combined 5.65 percent on each paycheck. Ministers are self-employed for Social Security with respect to their ministerial services, so their combined withholding rate for Social Security and Medicare is 13.3 percent.
With an extension, these rates will continue through December 31, 2012, putting $20 into an average worker's paycheck each week, the Associated Press reported. The national deficit will grow by another $100 billion, but lawmakers have previously said employees will not see lowered Social Security benefits in the future as a result of the reductions.
February 9, 2012
Ruling overturns controversial 2010 Driscoll decision.
A federal appeals court ruled Wednesday that the ministerial housing exclusion in the Internal Revenue Code is indeed limited to a single home.
The ruling overturns a split Tax Court decision (Driscoll v. Commissioner, 135 T.C. No. 27 (2010)) in which the lower court had ruled that the minister could exclude allowances paid to him for both his primary home and a lake home.
The lower court had based its ruling on its determination that the phrase "a home" can mean more than one home. Not so, said the 11th Circuit Court of Appeals on Wednesday. In an opinion that reads more like a grammar lesson than a court ruling, the appeals court ruled that "a" is, in fact, singular.
The appeals court decision restores the state of the law to what it was widely understood to be before the Driscoll case—one home.
It is possible that Driscoll could further appeal the matter, although we consider it unlikely. We will continue to closely monitor the case for that possibility.
This update first appeared in The Nonprofit Watchman, a service of Batts, Morrison, Wales & Lee, P.A. Reprinted with permission.
February 7, 2012
Across all paid church positions, men are paid 28 percent more than women.
Editor's Note: The 2014-2015 Compensation Handbook for Church Staff is now available. This resource details pay and benefits data for 14 church positions, including two new ones—part-time musician and part-time childcare provider. Each position is analyzed based on a variety of criteria, including education, experience, church size, and geography. The resource also includes step-by-step worksheets to help churches tailor compensation based on their unique circumstances. In the weeks and months ahead, watch ManagingYourChurch.com for graphics and short articles highlighting trends and other broad developments from the latest data.
Which positions in the church pay best for men and women?
Results from Christianity Today's biannual survey of 4,600 churches nationwide, which are featured in the new 2012-2013 Compensation Handbook for Church Staff, reveal the top 7 paid positions based on gender.
January 23, 2012
Churches should note upcoming February 28 deadline.
Editor's Note (02/21/12): A previous version of this post incorrectly stated the deadline for Form 1099s that are mailed. The correct dates are now shown in the post.
Form 1099s that are mailed are due on February 28, 2012, for the 2011 tax year (April 2, 2012, for those filing electronically), and churches that need to issue these forms should take note this year: a failure to send them on time has doubled from $50 per form to $100 per form.
If you do not have all the information needed to complete a Form 1099 (such as a Social Security number), you can still file it incomplete by February 28. As long as you secure the missing information and file the amended Form 1099 before August 1, 2012, then no penalties will apply. By the way, if you file the Form 1099 within 30 days after February 28, the $100 penalty is reduced to $30. If you file Form 1099 more than 30 days after February 28, but before August 1, 2012, the penalty is reduced to $60 per form.
The IRS projects collecting big bucks from these penalties over the next few years. Churches should check—and double check—to make certain Form 1099s are issued to all unincorporated businesses that provided services of $600 or more to them during 2011. This includes sole proprietorships, partnerships, and limited liability corporations (LLCs). You can verify the business information via a Form W-9.
For more information related to churches and taxes, check out the 2012 Church & Clergy Tax Guide.
January 5, 2012
Survey shows an average increase of 2.7 percent in pay and benefits.
How much are the pastors of Protestant churches nationwide earning these days?
The chart below shows the national averages for compensation and benefits earned by full-time senior pastors, based on Christianity Today's biannual survey of 4,600 churches nationwide. The survey provided valuable, detailed data on 13 church staff positions (including compensation levels based on personnel characteristics like years employed, denomination, region, gender, and education) for the 2012-2013 Compensation Handbook for Church Staff.
Among the findings of the survey: Senior pastors reported salaries and benefits that, on average, were 2.7 percent higher than those reported for the preceding 2010-2011 Compensation Handbook for Church Staff:
December 29, 2011
These tax rules determine if contributions should apply to 2011 or 2012.
December often brings more contributions to churches than any other month. Be prepared to handle year end contributions accurately by listening to Richard Hammar describe a number of important rules that apply to year end giving in the video below:
To learn more about how tax laws apply to your church, read Richard Hammar's 2012 Church & Clergy Tax Guide.
December 27, 2011
After weeks of debate, Congress has finally resolved the question of whether or not to extend the payroll tax holiday that was enacted in 2011. From now until at least February 29, 2012, nearly 160 million workers will benefit from the Temporary Payroll Tax Cut Continuation Act of 2011 temporarily, which extends the two percentage point payroll tax cut for employees, continuing the reduction of their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid through Feb. 29, 2012. This reduced Social Security withholding will have no effect on employees’ future Social Security benefits.
Employers should implement the new payroll tax rate as soon as possible in 2012 but not later than Jan. 31, 2012. For any Social Security tax over-withheld during January, employers should make an offsetting adjustment in workers’ pay as soon as possible but not later than March 31, 2012.
December 22, 2011
New tables available from the IRS.
Beginning on January 1, churches having nonminister employees (or a minister who has elected voluntary withholding) should begin withholding federal income taxes according to the new tables and instructions contained in the 2012 edition of IRS Publication 15 (Circular E). You can order a copy by calling the IRS at 1-800-829-3676, or you can download a copy from the IRS website (http://irs.gov).
December 15, 2011
Changing a minister to 'employee' status should happen January 1.
If you have a minister or lay worker who is treated as self-employed for federal income tax reporting purposes, but who you would like to reclassify as an employee, the ideal time to make the change is on January 1 of the new year.
December 13, 2011
Church leaders followed these stories most this year on ManagingYourChurch.com.
I’ve said it before, and I’ll say it again: I’m a sucker for lists. And the end of a calendar year always brings opportunities to reflect on the top stories and headlines from the year that was.
So it’s only natural to share the top ten articles for ManagingYourChurch.com in 2011 based on unique page views. Each post is highlighted below, starting with the tenth-most uniquely viewed post and building up to the first-most. Each highlight also includes the post’s title, author, and date, as well as a brief description and, if available, a notable reader comment.
See what caught the interest of church leaders nationwide, and feel free to weigh in with your thoughts on these legal, financial, and management topics:
10. The Pluses of Google+ for Church Leaders by Margaret Feinberg (July 18, 2011)
Social media tools continued to proliferate in 2011, and no new addition created a larger stir than the summer unveiling of Google+. Many early adopters viewed Google+ as the first legitimate threat to Facebook’s status as the social networking site of choice for the masses. Christian author Margaret Feinberg dove in to Google+ immediately and shared her initial thoughts about how it works, and the way its features may be useful for churches.
Notable reader comment: “I definitely see the strengths of G+'s Circles. Love the idea of Hangout, etc all being built in. My concern is that FB would only need to make a few changes to do the same thing. And so far, my Incoming on G+ is DEAD. Very little updating going on.” —Richie Allen
9. A Pastor’s Thoughts on Knowing What People Give by Larry Osborne (May 3, 2011)
In this guest post, Pastor Larry Osborne shares about a situation that changed his thinking about whether a pastor should know what people give to the church.
Notable reader comment: “To me, what was done with the information presents a better arguemtn for why pastors don't need to know than why they do need to know.” —John
8. The Church Bulletin as a Tax Tool by Richard R. Hammar (November 1, 2011)
How churches can use their bulletins at the end of the year to provide timely, helpful year-end tax reminders and guidance to givers.
Notable reader comment: None.
December 12, 2011
What church leaders should note heading into the new year.
On Saturday, the Internal Revenue Service announced its recommended optional standard business mileage rates for 2012. These recommendations are ones "employees, self-employed individuals, and other taxpayers can use to compute deductible costs of operating automobiles (including vans, pickups and panel trucks) for business, medical, moving and charitable purposes," the IRS says.
Many church treasurers also use these recommended rates to reimburse business miles logged by pastors, staff members, and volunteers for the use of their personal vehicles to drive hundreds of miles each month for visitations, home visits, retreats, community meetings, and conferences, among other things.
Beginning January 1, 2012, the IRS says the 2012 standard mileage rate remains at 55.5 cents per mile for business uses, is reduced to 23 cents per mile for medical and moving uses, and remains at 14 cents per mile for charitable uses.
Moving forward, it's important for church treasurers to periodically check for updates on the rates from the IRS. For instance, in June, the IRS increased the standard mileage rate from 51 cents per mile to 55.5 cents per mile for the second half of 2011 to address increased gas prices around the country.
In the February 2012 edition of Church Finance Today, Richard Hammar sheds more light on mileage rates, including a more expansive review of the best practices regarding reimbursements for vehicle uses by church staff.
December 8, 2011
New cost-of-living adjustments apply next year.
The IRS has announced cost-of-living adjustments applicable to dollar limitations for pension plans and other items for 2012. These include the following:
For more help with 2011 tax filings and 2012 tax questions, check out the 2012 Church & Clergy Tax Guide.
December 1, 2011
New laws, life changes have likely affected many.
December is a good time to check with all nonminister church employees to see if they need to file a new W-4 form with the church. The W-4 form is used by employees to report withholding allowances. This information will determine how much income tax the church withholds from the wages of a nonminister employee. The important point is this--W-4 forms often become obsolete because of changes in an employee's circumstances, but the employee fails to submit a new form to the church. This can result in withholding that is significantly above or below the actual tax liability.
There are many reasons why an employee's W-4 may be inaccurate, including the birth of a child, a pay raise, or significant medical expenses. These same considerations apply to ministers who have elected voluntary withholding of their taxes.
Additional Tip: The tax cuts passed by Congress in recent years have reduced taxes for most Americans, and this is another reason why some church employees will want to submit a new W-4 form.
November 1, 2011
Simple reminders can help members with end-of-year giving.
To avoid jeopardizing the tax deductibility of charitable contributions, churches should advise donors at the end of 2011 not to file their 2011 income tax returns until they have received a written acknowledgement of their contributions from the church. This communication should be in writing. To illustrate, the following statement could be placed in the church bulletin or newsletter during the last few weeks of 2011, or included in a letter to all donors:
IMPORTANT NOTICE: To ensure the deductibility of your church contributions, do not file your 2011 income tax return until you have received a written acknowledgment of your contributions from the church. Some of your contributions may not be tax-deductible if you file your tax return before receiving a written acknowledgement of your contributions from the church.
Keep your congregation informed about the rules for substantiating charitable contributions by ordering the 2012 Charitable Contributions Bulletin Inserts by Richard Hammar. The insert is designed as a one-page summary explaining the rules of most importance to church members and can fit easily in church bulletins, newsletters, or contribution statements. The inserts are available in quantities of 100 or can be purchased for electronic download. Call 1-800-222-1840 or visit YourChurchResources.com to order.
October 13, 2011
One Idaho church receives an unexpected tax bill.
A church in Boise, Idaho, received an unexpected property tax bill of $17,000 for leasing space to a local YMCA daycare, according to Northwest Cable News. The church charges the nonprofit about $9,500 a month to rent space often left unused during the week.
The county attorney reviewed the church’s non-profit application and determined that the area dedicated to the daycare, representing 18 percent of the church’s square footage, is making a profit. The county admits that it interpreted the tax law different in past years, but it believes this year’s interpretation is more accurate. The church has appealed to a state tax appeals board. A decision may take months.
October 4, 2011
"Pulpit Freedom Sunday" raises questions as Election Day draws near.
This past Sunday, the Alliance Defense Fund expected nearly 500 church pastors nationwide to participate in "Pulpit Freedom Sunday." The event, organized for four consecutive years by ADF, is designed to challenge a 1954 amendment to the
501( c) 3 tax code that doesn't allow nonprofits to participate in political campaigns. The law is often referred to as the "Johnson Amendment" because Lyndon Johnson, a U.S. Senator at the time, introduced and advocated its passage.
As Richard Hammar explains in the 2011 Church & Clergy Tax Guide:
This limitation has an unusual and unfortunate history. It was proposed in 1954 by then Senator Lyndon B. Johnson of Texas as a floor amendment to the tax code, and it was passed without explanation. Apparently, Senator Johnson was attempting to limit the political activities of a private foundation that had supported one of his opponents in a Texas election. It is clear that few, if any, Senators contemplated in 1954 that the newly enacted limitation could be used to threaten the tax-exempt status of churches. However, the limitation is worded in absolute terms—prohibiting any attempts by churches or any other tax-exempt organizations to participate or intervene in a political campaign—and therefore does pose a significant threat to churches.
The goal of "Pulpit Freedom Sunday" is to get "the Johnson Amendment declared unconstitutional—and once and for all remove the ability of the IRS to censor what a pastor says from the pulpit," according to an ADF website created for the event. In 2008, 33 pastors preached on political matters for "Pulpit Freedom Sunday," then sent copies of their sermons to the IRS. In 2009, 84 did the same, while last year, about 100 did so. Each year, including this year, ADF has agreed to defend—for free—any IRS attempts to prosecute participating pastors.
So far, no such challenges have occurred.
Articles and editorials about this year's event showed up nationally in notable newspapers and websites.
September 21, 2011
Teams of people posing as tax service companies knock on church doors.
The most common way tax scammers seem to work is through e-mail. Countless e-mails arrive daily in inboxes claiming a tax refund is available.
After teaming up with a church, they charge a fee for their service that includes convincing unsuspecting taxpayers to file an IRS return for tax credits, refunds, or rebates for which they are not entitled. By the time claims on the returns are rejected, the scammers have left town.
September 19, 2011
Most clergy are shocked when they learn the answer.
Most clergy would be shocked to learn that their sermons are works made for hire that are owned by their employing church, and that their sermons cannot be used in any other churches with which they are later employed without the permission of the church with which they were employed when the sermons were created. This can become a contentious issue in the case of clergy whose sermons are recorded and sold publicly by the church.
Are Sermons Works Made for Hire?
Are a minister's sermons works made for hire that are owned by the employing church? To the extent that sermons are written in a church office, during regular working hours, using church secretaries and equipment, it is possible if not likely that they are works made for hire since they are created by an employee within the scope of employment.
The argument could be made that sermons are works for hire even if composed by ministers at home, during "non-office" hours, since they comprise one of the most important functions that they perform on behalf of their employing church and congregation.
What this means for you and your church:
September 14, 2011
City says land can be assessed.
An ongoing property tax assessment battle between Concord, N.H., and a 50-member church there has led to the church putting its property up for sale to make ends meet, according to a recent article in the Concord Monitor.
Four years ago, the city assessed taxes for the property after it determined 60 percent of it wasn’t used for religious purposes. The Destiny Christian Church, a Pentecostal congregation, owns a two-story building, a parsonage, and 26 acres, according to the newspaper article.
The church disputed the tax bill, but the Board of Tax and Land Appeal sided with the city. This summer, the appeal was approved to go to the state Supreme Court.
September 1, 2011
If you’ve ever created receipts for church offerings and donations, you’ve probably been asked to receipt donated property.
August 30, 2011
Why churches must understand unrelated business income.
A church in Mount Vernon, Washington, thought it didn't owe taxes. But that changed after a recent state audit, when the state said the church owed $180,000 in back taxes and penalties, according to a TV news station.
The church charges admission to a small amusement center. All profits support the church's ministry. Previously, the church thought that since these admission fees supported the ministry, taxes were not owed. The state's department of revenue disagreed, although it lowered the amount owed to $58,000 after reviewing the case and waived all penalties and interest if the church can commit to paying.
July 28, 2011
If free money sounds too good to be true, it probably is.
Editor's Note (August 15, 2011): Naomi Martin, a reporter with The New Orleans Times-Picayune wrote this article for the newspaper on Sunday. It provides additional details on how some of these scams approach church leaders.
In July, the IRS urged its Twitter followers to be leery of tax scams convincing taxpayers to apply for rebates or credits. And Forbes reported that there’s been a recent “flurry of schemes in the South and Midwest” targeting local churches. Scammers convince churches that free money is available from the IRS through large tax credits or rebates, requiring minimal paperwork—a substantial reward for little effort and an offer truly too good to be true.
Unfortunately, churches are falling for it.
In 2008, Richard Hammar cautioned churches about several scams included in the IRS’s annual “Dirty Dozen,” a list of common tax scams all taxpayers should be aware of. Out of the twelve, Hammar focused on five that were relevant to churches. These five are still relevant, according to the IRS’s 2011 Dirty Dozen. Read about the five below, and view the complete list at irs.gov.
Five To Watch
Phishing. Identity thieves use this technique to acquire personal information in order to gain access to the financial accounts of unsuspecting consumers, run up charges on their credit cards, or apply for loans in their names.
July 21, 2011
Differing views on whether a change will affect giving to churches.
The president has proposed a 2012 budget that will decrease the value of itemized tax deductions, including deductions for charitable contributions, for individuals making $200,000 or more and families making $250,000 or more per year. Also in the proposed budget is a tax increase for those in that income level.
Some say both of these changes could mean a decrease in the amount of charitable contributions to churches. Others suggest the affects may not amount to much.
In the 2011 State of the Plate, a survey of more than 1,500 church leaders, 91 percent say that this type of change would affect future giving at their church. Of the 91 percent, 31 percent characterize the potential damage as “significant.”
July 14, 2011
Wording is more important than you might think.
In the excitement of planning a mission trip, it’s possible to overlook the importance of carefully worded support letters that meet IRS guidance. The IRS indicates what would be helpful to include in letters requesting charitable contributions, according to Dan Busby, president of the Evangelical Council for Financial Accountability (ECFA).
Busby co-hosted a webinar late last month that included a discussion on the importance of the wording in these letters. The IRS says the following elements, clearly stated in fundraising letters, meet its guidance:
Although unlikely, church mission trips may be canceled; therefore, it is good to mention in the letter what will happen to the donated money in that situation.
June 30, 2011
Despite some claims, IRS revocations aren't in store.
The IRS Advisory Committee on Tax Exempt and Government Entities (“ACT”) issued a report in June that addresses a number of tax compliance issues, including group exemption rulings.
The report caught the attention of many church leaders, since thousands of churches have obtained recognition of tax-exempt status by being included in the group exemption ruling of a parent denomination. Unfortunately, the report has caused needless concern, in part because of the false claims of some seminar leaders that the IRS is going to “revoke the group exemptions of churches by the end of the year.”
The good news is that the IRS is not going to revoke group exemptions. A feature article in the September-October 2011 edition of Church Law & Tax Report explains the recent ACT report, and sets the record straight.
June 23, 2011
The Internal Revenue Service announced this morning it has increased the optional standard mileage rate that employers can use to reimburse employees who drive personal vehicles for business purposes.
The IRS increased the rate to 55.5 cents per mile for travel occurring between July 1 and December 31.
The rate was 51 cents for January 1 to June 30.
Many pastors and staff members drive their personal vehicles for church-related business, such as visitations or special events. If properly tracked, those miles can be reimbursed by churches (or pastors and staff members may be able to calculate a deduction for their annual tax returns).
Chapter 7 of the 2011 Church & Clergy Tax Guide further explains reimbursements of transportation expenses.
June 23, 2011
275,000 nonprofits lost their tax-exempt status—some may be church-run
If your church runs a nonprofit agency, you may want to check this state-by-state list of 275,000 organizations whose tax-exempt status was recently automatically revoked by the IRS. Most organizations on the list no longer exist but some still do.
One organization on the list that still exists is a community development agency run by St. James Chapel Church of God in Christ, according to a newspaper in Reading, PA.
A law in 2006 requires most tax-exempt organizations (excluding churches) bringing in $25,000 or less to start filing yearly IRS returns, specifically form 990-N. Before 2006, they were not required to file. Those that do not file for three consecutive years will find their tax-exempt status automatically revoked by the IRS.
June 22, 2011
But battles loom as more challenges are promised.
A constitutional challenge to the tax-free housing allowances and parsonages provided to thousands of American pastors is over after the plaintiffs who filed the original lawsuit voluntarily requested its dismissal Friday in a California district court.
But the battle is far from over. More legal challenges from opponents of the provision are promised, while a federal commission reviewing the benefit has been asked to determine whether it needs additional protections.
A leader from the Freedom From Religion Foundation, the group that led the latest charge against the decades-old tax benefit for clergy, said her organization will continue its fight to bring an end to these allowances, which it believes violate the First Amendment's Establishment Clause and endorse religion.
Friday's request for dismissal was FFRF's "only option at this time" after a U.S. Supreme Court ruling in April on a separate Arizona taxpayer case undermined the grounds for its case in California, said Annie Laurie Gaylor, co-president of the Madison, Wisconsin-based organization.
The group is evaluating its next options to challenge the benefit. "We plan to pursue it in a slightly different manner," Gaylor said. "We're sorry about (the California case)—we think the Ninth Circuit already indicated that it believed the law was unconstitutional. We believe it's an unconstitutional law."
June 14, 2011
Supreme Court ruling may hurt standing of FFRF's case.
Last month, Richard Hammar wrote an article detailing new developments in the constitutional challenge to pastoral housing allowances under way in California.
In a separate case in Arizona, the Supreme Court ruled the plaintiffs there lacked standing for their case to proceed. The logic applied in that situation likely will apply to the plaintiffs challenging the pastoral housing allowance in California, Hammar says (Hammar further explains the ruling's meaning and how it may prevent the Freedom From Religion Foundation from successfully advancing its case to trial).
The defendants in the housing allowance case likely will file a motion for its dismissal. If the motion succeeds, it will thwart what had otherwise become a growing concern for religious communities, churches, and pastors across the country.
In the latest issue of Christianity Today, a new article also examines the development in the Arizona case, quoting Hammar as well as several other religious and First Amendment experts, including Notre Dame law professor Rick Garnett and University of Virginia law professor Douglas Laycock. Garnett reinforces Hammar's analysis; Laycock says the decision, though helpful for the defendants in Arizona (and likely California), may create a "squelching" affect for any future cases arguing violations of the Establishment Clause, according to the article.
June 2, 2011
It's time churches share their stories to local communities.
A little more than a year ago, Bill Maher hosted actor Ashton Kutcher, author and editor Jon Meacham, and Florida Congresswoman Ileana Ros-Lehtinen on his HBO program, Real Time. A YouTube clip from the program circulated recently throughout social media circles.
Church leaders might find the clip particularly interesting—and not just because of Maher's well-documented skepticism of religious beliefs (for instance, in 2008, he released Religulous, a feature film with a title combining the words "religious" and "ridiculous.")
Rather, it's a question he raises to his guests.
At one point, Maher asks Meacham, Kutcher, and Ros-Lehtinen whether churches should be taxed. Without hesitation Meacham says yes, offering his own church—one located on valuable New York City property—as an example to support his position. After Maher quips about the "invisible" product churches "sell," Meacham adds they're only open one hour per week anyway.
Kutcher suggests churches should be judged based on their philanthropic worth before determining their tax status, a "luxury tax" of sorts. The congresswoman remains silent on the subject throughout the clip.
Conversations like this only underscore the growing chorus of opposition to the tax-exempt status of churches. One need only read the YouTube comments below Maher's clip to see how hostile that chorus has become.
It's time churches responded, joining the conversation in an active, productive way. Lest Maher or any of his guests think otherwise, churches already pay many types of taxes, despite their exempt status, whether it's payroll taxes for employees, fees for local services, or taxes on substantial amounts of unrelated business income.
May 17, 2011
Three Christian leaders weigh in on a difficult giving question.
In the March edition of Christianity Today, three men with backgrounds in church and personal finances were asked whether the jobless should tithe on their unemployment benefits. Read their answers, then share how your church has (or hasn't) addressed this question as the unemployment rate remains at or above 10 percent for many parts of the country:
"Yes, if joyfully. ... There are some reasons for jobless people—or anyone, for that matter—not to tithe. Do not tithe out of joyless obligation to law. Do not tithe if your soul requires nothing short of a New Testament demand to tithe (there is none). Do not tithe under the assumption that God will owe you anything. Do not tithe if you expect to default on a debt. Do not tithe if you will resent God for asking sacrifices of you—unless you intend the tithe, in the spirit of "I believe; help my unbelief," as your invitation for God to purge your resentment." —Douglas LeBlanc, editor at large for The Living Church magazine and author of Tithing: Test Me in This. Read his full answer here.
"Yes, with generosity. ... Scripture does not speak directly to the topic of tithing on an income that is not your own, so I am reluctant to say firmly, "Yes, give this much." But the Bible has much to say on the subject of generosity and gratitude. There are four questions church leaders and others can ask to help someone struggling with tithing on their unemployment benefits:
April 28, 2011
The "good news" of churches' work in communities.
As cities and counties continue to eye possible taxes and fees for churches and religious organizations, interesting new research from The University of Pennsylvania's Ram Cnaan examines the economic value of a congregation to its surrounding community.
Using information from congregations in Philadelphia, Cnaan says churches, on average, provided $476,663.24 of services in 2009 to their surrounding communities.
He's now about to release information from a pilot study of 12 historic churches in Philadelphia, with one estimated to provide $6.1 million of services to the community (nearly 10 times its annual budget). Here's a graphic from the April issue of Christianity Today, our sister publication, detailing how Cnaan's research led to that conclusion.
Something else to note: Cnaan describes himself as "nonreligious," according to Christianity Today.
April 19, 2011
New law nixes 'crushing administrative burden'
In the April edition of Church Finance Today, Richard Hammar previewed the possible repeal of the expanded 1099 reporting requirement included with the Patient Protection and Affordable Act (last year's health care reform legislation).
The requirement would have required all persons or entities engaged in a trade or business (including churches and nonprofits) who make payments to a "non-employee" in any year of $600 or more to report it to the IRS on Form 1099-MISC. As Rich explains, the requirement was designed "to improve tax compliance based on the assumption that payees are more likely to correctly report their taxable income if they realize that payors are reporting that income to the IRS."
Controversy erupted because of the requirement, largely because many believed it would "impose a crushing administrative burden on countless nonprofit and for-profit entities as a result of the obligation to file billions of new 1099 forms," Rich explains.
Earlier this month, the Senate passed legislation that included a repeal of the requirement. On Thursday, President Obama signed it into law.
Rich will cover this development more extensively in an upcoming issue. For more updates on the health care reform for churches, join Rich on May 4 through this special live webinar co-presented by Christianity Today International and the Evangelical Council for Financial Accountability.
April 18, 2011
Potentially thousands of dollars available from health care provision.
Editor's Note (September 29, 2011): A church business administrator in Colorado shared the following update regarding his church's application for this credit: "We submitted form 990-T claiming the credit (approximately $7,100) in late April. We received a request for more information from the IRS late August. Yesterday, the IRS told me that they are still working through a massive amount of applications, and it could take up to 60 days from now to receive our refund, if we are deemed qualified. They said they have 5 agents working on the applications, which is taking them longer than expected. So for those of you still waiting like us, it may be awhile before you see your check. The IRS contact said you are welcome to call 877.301.5153, select option #2, to check on your status (the IRS contact was courteous and professional)."
Editor's Note (August 12, 2011): The 11th Circuit ruled today that a key part of Obama's healthcare reform is unconstitutional. Watch for future updates here, on ChurchLawandTax.com, and in Church Law & Tax Report to learn what this means for churches.
Is there really a "tax credit" available to churches based on last year's health care reform? For those offering health care to employees, the answer is quite possibly yes. The deadline for the first opportunity to take advantage is approaching fast, though.
Some churches say they have received more than $10,000 from the provision, so it's worth investigating what it involves. Richard Hammar provides further information in this short video update below.
April 12, 2011
Several voices weigh in on an important tax benefit for clergy.
The newest issue of Christianity Today poses an interesting question: Should Congress change pastors' housing allowances?
Expect to hear a lot more on the topic in the weeks and months ahead. Since the conclusion of Sen. Charles Grassley's (R-Iowa) financial investigation of six large televangelism ministries, the Evangelical Council for Financial Accountability (ECFA) has been chosen to lead a commission responding to Grassley's eight remaining questions about ministry finances, including "Should there be specific guidelines controlling pastoral housing allowances?" The current tax code excludes the rental value of a home from pastors' taxable income.
Christianity Today posed the question to a variety of people involved in theological, nonprofit, and church leadership, including our own Richard Hammar. Read these three responses, then weigh in with yours:
"In the paradoxical Christian spirit that a little sacrifice by some assures a more abundant future for all, reductions could reflect typical mortgage deductions by phasing out the allowance for pastors who make more than the typical American while leaving the allowance for the rest." —Gary Moore, founder, The Financial Seminary
"I'm all for saving tax money, but I do see the legal complication of giving tax breaks just to ministers, structured the way it is. A lot of ministers depend on it, and I don't want pastors to suffer. I hope it's retained, but at the same time it's hard for me to find reasons why it should be." —Gene Edward Veith, provost, Patrick Henry College
"The courts have consistently upheld the constitutionality of state and federal grants and loans that flow to clergy and ministerial students attending seminaries. Why? Because the beneficiary is the individual, not 'religion.' The housing allowance is similar." —Richard Hammar, senior editor, Church Law & Tax Report
April 5, 2011
State of the Plate survey suggests concerns--but are those valid?
One angle covered by secular media during the recent release of the 2011 State of the Plate survey results: The possible affects of a current "federal proposal to reduce tax deductions for charitable donations among wealthy Americans," as CNN.com reported Wednesday.
Cathy Lynn Grossman with USA Today's "Faith and Reason" blog focused extensively on that question and response from the survey in a piece also published Wednesday:
March 30, 2011
6 in 10 churches held—or gained—ground in 2010.
Since the recession in 2008, many U.S. churches have seen a decline in giving. But the tide may be changing. The third annual State of the Plate constituency survey of 1,507 churches revealed that 43% of these churches experienced an uptick in giving this past year (up from 36% the previous year). Overall, 6 in 10 churches reported giving that was flat or up in 2010—encouraging results given the nation’s stalled economy.
Smaller churches (under 249 people in worship attendance) saw giving declines (40% in churches under 100 people and 43% in churches with 100-249 people). Giving dipped most in Southeast states, rather than among Pacific Coast states as it did in previous years.
March 28, 2011
Accounting for this type of option for vehicles.
Question: Our church provides an auto allowance budget line item for vehicle expenses for our pastor. The pastor leases a vehicle that he uses for church-related business. He has asked to use the budget line for reimbursement of the expenses associated with the leased vehicle's use.
The pastor submits receipts for expenses associated with the leased vehicle for reimbursement (i.e. lease payments and maintenance). What are the IRS guidelines in such an instance?
Answer: “If you lease a car that you use in your ministry, you can use the standard mileage rate or actual expenses to figure your deductible car expenses. You can deduct the part of each lease payment that is for the use of the car in your business. You cannot deduct any part of a lease payment that is for personal use, such as commuting. You must spread any advance payments over the entire lease period. You cannot deduct any payments you make to buy a car, even if the payments are called lease payments. If you lease a car that you use in your business for a lease term of 30 days or more, you may have to include an inclusion amount in your income for each tax year you lease the car. To do this, you do not add an amount to income. Instead, you reduce your deduction for your lease payment.
March 3, 2011
How the economy, and dying counties, may hamper church-building plans.
Editor's Update (4/26/2011):The Nonprofit Quarterly pointed this morning to a Boston Globe article reporting 40 of the city's largest nonprofits, with property valued at $15 million or more each, have received letters from the city "requesting them to make regular and voluntary tax payments based on the value of their holdings.
"Boston is not alone is seeking to raise revenues from nonprofits ... In Boston, nonprofits are especially tempting targets, because as the Globe notes, they own about 52 percent of the city’s land area," the Nonprofit Quarterly continues. "Under the new plan payments would rise from $15 million, which they paid this year, to $48 million over the next five years."
Editor's Update (4/4/2011): The Nonprofit Quarterly pointed this morning to a Times-Picayune article covering the recommendations of a mayor-appointed "Tax Fairness Commission" in New Orleans. One of the three recommendations:
"...changes to the state’s constitution that would allow cities statewide to collect taxes from nonprofits as part of a larger effort to bring in more revenue from untaxed property ...
... If adopted by lawmakers and voters statewide, the most sweeping of those changes, according to The Times-Picayune, “would allow local governments to collect taxes on as much as half the assessed value of properties that long have paid nothing because their educational, religious, cultural, fraternal or other missions qualify them for exemptions.”
Up until last week, there's a good chance most people hadn't heard of "natural decrease." But newly released U.S. Census data reveal a near-record number of counties in the country are dying, and the term describing the phenomenon has quickly gone mainstream.
The Associated Press reports:
"In all, roughly 760 of the nation's 3,142 counties are fading away, stretching from industrial areas near Pittsburgh and Cleveland to the vineyards outside San Francisco to the rural areas of east Texas and the Great Plains. Once-booming housing areas, such as retirement communities in Florida, have not been immune.
West Virginia was the first to experience natural decrease statewide over the last decade, with Maine, Pennsylvania and Vermont close to following suit, according to the latest census figures. As a nation, the U.S. population grew by just 9.7 percent since 2000, the lowest decennial rate since the Great Depression."
What's the significance for church leaders? Well, beyond the obvious ministerial needs and challenges that churches located in dying counties can help meet, there's another separate-but-significant connection. The AP says two primary reasons for "natural decrease" are an aging population and a poor economy.
It's the second reason that church leaders should especially note. As municipalities--dying or not--continue to struggle with shrinking tax revenues, and aggressively look for ways to survive, churches and nonprofits will only find it tougher to avoid taxes and tougher zoning restrictions.
A year ago, we saw the question of taxing churches unfold publicly in places like Utah, Ohio, and Indiana.
On the zoning front, challenges with ordinances appears, as one attorney puts it, to be "heating up" for churches because of the economy (and that's saying something--zoning issues are already one of the top five reasons churches go to court each year).
February 23, 2011
Federal tax-filers get a few extra days.
Haven't started your federal taxes yet?
As February fast draws to a close, you may be encouraged to know that you get an extra three days to work on 2010 filings. From this morning's Richard Hammar's Essential Reminders:
"Taxpayers will have until Monday, April 18 to file their 2010 tax returns and pay any tax due because Emancipation Day, a holiday observed in the District of Columbia, falls this year on Friday, April 15," reports the IRS.
February 22, 2011
ChurchLawAndTax.com offers leaders comprehensive info
We’re pleased to announce the launch of ChurchLawAndTax.com (formerly ChurchLawToday.com).
We’ve given the site a fresh, new look to serve church leaders like you even better. You’ll find an updated Archives of the Church Law & Tax Report newsletter through 2010 (that's nearly 25 years' worth of past editions) and extensive updates to the Legal Library, a comprehensive, fully searchable reference written by Richard Hammar for pastors, board members, and church leaders. We’ve also revolutionized the Weekly Lessons quiz feature to improve your learning experience.
A new, free Updates section of ChurchLawAndTax.com highlights information pertinent to church leaders and includes:
February 17, 2011
Upcoming resources to help wade through tax laws that affect clergy.
The "The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010," passed by Congress and signed by President Obama in mid-December, triggered a domino-like effect of changes for tax-filers--so much so that even the Internal Revenue Service delayed its efforts to process returns (it finally began doing so on Monday).
For pastors, the tax-filing process already is a cumbersome one. As Richard Hammar notes in the upcoming edition of Church Law & Tax Report, there are at least 20 common tax-filing mistakes that clergy make each year, either because they filed their own returns and didn't understand how various laws applied or because they used a tax professional who didn't understand the unique complexities that apply to clergy. Among the mistakes frequently made:
February 10, 2011
A new, free PDF offers helpful payroll tax reminders for churches.
Looking for a helpful—and easy—way to remember federal payroll tax reporting requirements as a church? Check out this handy, printer-friendly PDF we've prepared titled "Ten Steps to Tax Reporting."
Here's a sneak peek:
10) Complete Forms 1099-MISC and 1096. Must be issued to any nonemployee who is paid compensation of at least $600 during any year.
9) Determine the amount of income tax to withhold from each employee’s wages. The amount of federal income tax the employer should withhold from an employee’s wages may be computed in a number of ways—the most common are the wage bracket method and the percentage method.
Read the remaining eight by downloading the PDF.
January 18, 2011
How Social Security taxes, other benefits are affected.
On December 17, Congress passed the "The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010." After President Obama signed it into law, numerous tax provisions that were about to expire were kept alive. And a significant benefit for many employees--a lower Social Security tax rate for 2011--also became reality.
In this short video, watch Richard Hammar cover some of the significant developments from the Tax Relief Act, and what it means for church leaders as they prepare for 2010 returns and plan for 2011. From there, pick up the 2011 Church & Clergy Tax Guide. This must-have reference includes all of the latest information and forms, including items affected by the Tax Relief Act, as well as Rich's unparalleled analysis.
January 11, 2011
What churches should note for 2011 housing allowances.
Late in 2010, the United States Tax Court ruled a pastor could apply a housing allowance toward expenses incurred from a primary residence and a vacation home.
What are the implications for church leaders? Well, while many may not own a vacation home, many may find themselves in positions where they answered calls to ministry in other communities, only to fail selling their former homes. For pastors in these situations, and others, the decision may have significant relevance.
Watch as Richard Hammar explains the important ramifications of this ruling:
January 7, 2011
ECFA will lead independent inquiry at Sen. Grassley’s request
Editor's Update (12/8/11): The Commission on Accountability and Policy for Religious Organizations is now taking public comments on the various issues it is studying.
Editor's Update (4/27/2011): The ECFA has announced the initial members of its commission. The list includes several clergy, as well as Richard Hammar, senior editor of Church Law & Tax Report and Church Finance Today.
Sen. Charles Grassley, R-Iowa, has asked the Evangelical Council for Financial Accountability to head an independent commission that will obtain feedback about the financial practices and oversight of churches and religious groups nationwide.
The goal is to help determine best practices and changes that encourage compliance with federal tax laws and maintain financial integrity within the religious community while avoiding new laws mandating such behavior. But those involved say it’s too early to tell how the commission’s work will affect any changes—or whether it can prevent any new laws—and how long it will take.
In a press conference called this morning in Washington, D.C., ECFA leaders outlined requests made by Grassley, who yesterday released his final report of a three-year inquiry into the financial activities of six high-profile media ministries. The issues to be explored “could potentially affect every house of worship and every member of the clergy in America,” said Michael Batts, an ECFA board member who will chair the special commission.
Grassley’s office contacted the ECFA three weeks ago to indicate its report of the six ministries—in which only two fully cooperated with investigators and no ministry received a penalty—was imminent.
In the course of its investigation, Grassley’s office uncovered what it believes to be eight areas of concern related to financial practices and oversight for churches and religious groups. The newly formed Commission on Accountability and Policy for Religious Organizations, funded entirely by the ECFA, will examine:
January 4, 2011
Richard Hammar and Dan Busby tackle key questions for churches.
Members of Congress passed a sizable tax-cut package late on December 17, and it barely hit President Obama’s desk the next day before he signed it into law. According to one media report, the package extends, adds, or modifies nearly 25 significant tax benefits for a wide range of Americans. Not surprisingly, the package has implications for churches and clergy, including a lower Social Security tax rate for non-ministerial employees who earn up to $106,800 in 2011, which means churches need to adjust their payrolls accordingly now.
Richard Hammar detailed at least 64 changes in tax law for the 2010 filing season that churches and clergy should note in his January/February Church Law & Tax Report. He’s now created an updated document regarding these most recent developments that will become available later this month on YourChurchResources.com, where you can also find his 2011 Church & Clergy Tax Guide, a must-have reference throughout the year ahead.
In the meantime, as you work to make sense of it all, you should take advantage of a unique opportunity at 1 p.m. EST on January 12. That’s when Rich, along with Dan Busby, president of the Evangelical Council for Financial Accountability, will co-present a live webinar titled Congregation Filings Issues for 2010 Data. Rich and Dan will present key informational updates, plus take participant questions. You won’t want to miss it!
December 30, 2010
The key law, tax, finance, and safety issues readers cared about this year.
Last week, we took a moment to highlight the Top 10 most-read articles from Your Church magazine's website, YourChurch.net. As we continue to count down the days to 2011, we now offer the Top 5 most-read posts from TheYourChurchBlog.com during 2010:
5. Should Pastors Know What People Give? This post--which generated a high number of comments--raised the question based on how three different churches say they address it.
4. A New Tool for Calculating Church Staff Salaries. Personnel expenses make up a significant portion of church budgets--sometimes 50 percent or more. As a companion tool to our 2010-2011 Compensation Handbook for Church Staff, we developed a free worksheet that actually walks church leaders through the process of determining a fair pay range for each pastoral and staff position at their churches.
December 20, 2010
These Your Church Today articles drew the most traffic.
As 2010 comes to a close, it’s time to get all nostalgic and look back at the year that was. That includes reviewing the articles that interested readers throughout the year. Based on Internet traffic patterns, these 10 articles from YourChurch.net (Your Church Today magazine’s website) led the way:
10. Is My Church Covered? We noticed many church leaders seemed to be taking a hard look at their church insurance policies, their premiums, and any possible savings they could make in light of tightened budgets. Our Summer 2010 cover story reviewed the changing landscape of church insurance, including key coverage changes to note, terms to know, and a brief look at the biggest church insurance providers.
9. State of the Plate Results A detailed look at the results from the 2010 State of the Plate survey, which Christianity Today International conducted with Maximum Generosity to see how 2009 ended for American churches. Among the findings: More churches missed their budgets in 2009 compared to 2008.
8. Debunking the Clergification Myth Respected author and researcher Ed Stetzer examines the prevailing models of church staffing structures and argues for changes that place less emphasis on paid staff and more emphasis on an empowered lay leadership base.
December 15, 2010
Act now so that pastors can receive this tax benefit in 2011.
Churches must designate a portion of each minister's compensation as a housing allowance by December 31 in order for ministers who own or rent their homes to receive the full benefit of a housing allowance exclusion for calendar year 2011. The designation should be adopted during a regular or special meeting of the church board, and should be contained in the written minutes of the meeting.
Churches should designate a parsonage allowance for any minister who lives in a parsonage and who is expected to pay some of the expenses of maintaining the parsonage (e.g., utilities, furnishings, repairs, improvements, yard care). For sample housing and parsonage allowance resolutions, see chapter 6 in the 2011 Church and Clergy Tax Guide, available for January shipment.
Get more handy reminders like this one sent to your inbox free each week by signing up for Richard Hammar's Essential Reminders.
December 9, 2010
Churches and clergy face at least 64 tax changes come January.
In an upcoming issue of the Church Finance Today newsletter, senior editor Richard Hammar relays a comment made by Douglas Shulman, U.S. Commissioner for Internal Revenue, during a speech given earlier this fall to the American Institute of CPAs: “The sheer girth and complexity of the tax code continue to grow, in spite of efforts to simplify it. There have been an astonishing 4,400 legislative changes to the code from 2000 to September of this year.”
Every year, Rich combs through pages of tax code looking for changes that directly affect churches and clergy. It’s a massive undertaking, but one that thousands of church leaders across the country appreciate, given the “sheer girth and complexity of the tax code” as Shulman puts it. For instance, how would any of us know about the 64 significant changes or additions that church leaders should note for the tax filing season upon us?
Rich highlights these changes in greater detail for our January/February issue of Church Law & Tax Report. But let me also encourage you to pre-order Rich’s 2011 Church & Clergy Tax Guide, the tangible fruit of his yearlong labor. This exhaustive book not only will guide you during tax season, but it also will serve as a trustworthy resource to reference time and again throughout the year.
December 2, 2010
Advisors host webinar on handling end-of-year charitable contributions.
Michael Batts and Dan Busby, two members of our Editorial Advisory Board, will co-present a 60-minute webinar on Tuesday, December 7, about the ins and outs of year-end giving and receipts. Batts is managing partner with the CPA firm Batts Morrison Wales & Lee. Busby is president of the Evangelical Council for Financial Accountability, which is hosting the webinar. Both are highly knowledgeable and articulate regarding a wide range of church tax and finance issues, including the handling of charitable contributions.
Among the topics they plan to cover:
• What is required and not required on year-end giving statements
• Cut-off dates for receipting of cash/check gifts
• Noncash gift reporting, including recent cases and IRS correspondence as well as valuing noncash gifts
• Form 1098-C issues with respect to gifts of autos, boats and airplanes
• How to acknowledge quid pro quo gifts
• How to handle Christmas gifts to staff, love offerings raised for staff, and gifts restricted/designated for staff
ECFA members can participate for free, while nonmembers need to register for $29.
For more information and guidance on year-end gifts and charitable contributions, be sure to check out Rich Hammar's 2011 Church & Clergy Tax Guide and our popular 2011 Charitable Contributions Bulletin Inserts, as well as "Best Practices for Receiving Charitable Contributions."
October 26, 2010
A new LifeWay survey shows pastors strongly oppose endorsements.
A majority of pastors believe churches should not publicly endorse political candidates, a new LifeWay Research survey shows.
Phone interviews conducted randomly in early October with 1,000 church pastors, ministers, and priests revealed 70 percent strongly disagreed and 14 percent disagreed with the statement, "I believe pastors should endorse candidates for public office from the pulpit."
The results reinforce LifeWay's finding in October 2008 that less than 3 percent of Protestant pastors had publicly endorsed candidates for public office that year.
Even with pivotal races for seats in the U.S. House of Representatives and Senate coming to a head in two weeks across the country, it appears most pastors aren't willing to publicly weigh in.
"We know that pastors have strong feelings when it comes to political candidates and their job performance," said Ed Stetzer, president of LifeWay, in a prepared statement. "But each week when they step into public pulpits in front of sometimes thousands of congregants, the vast majority of those pulpits remain silent on advising others how to vote. They may not approve, but they do not plan to tell."
The reasons for this silence aren't exactly clear. One possible explanation may be a fear of jeopardizing tax-exempt privileges. While churches and religious organizations have heavily involved themselves in political campaigns in the past, the IRS has heightened its scrutiny of such activity during the past decade.
October 18, 2010
Sale in honor of church administration day on October 21.
Our friends at the National Association for Church Business Administration have designated Thursday, October 21, as "National Church Administration Day." As NACBA explains it on its website:
"The idea behind National Church Administration Day is for seasoned church leaders to share their expertise with anyone – whether clergy or laity – performing administrative duties in any congregation, with the goal that all churches become more effective and responsible."
In appreciation of church administrators, Christianity Today International’s YourChurchResources.com store is offering a 30% discount from now through October 21, 2010, in honor of National Church Administration Day. Customers can apply the 30% off promotion code “cad30off” when they place their orders for any products at YourChurchResources.com.
YourChurchResources.com continues to be the trusted source for financial, legal, tax, safety, risk management, and employment products specifically tailored for churches. Top sellers include the 2011 Church & Clergy Tax Guide, the Essential Guide to Church Finances, The 2010-2011 Compensation Handbook for Church Staff, the Essential Guide to Copyright Law for Churches, and the 2011 Church Office Planner.
Additionally, YourChurchResources.com offers hundreds of church and ministry assessments, training tools, and downloads.
October 12, 2010
Can churches legally designate medical allowances for pastor health plans?
Question: We are entertaining the idea of changing our health care coverage to a HSA (Health Saving Account)-compatible policy. Presently our three pastors receive a designated amount of medical allowances each year to help them cover the costs of out-of-pocket moneies that go toward their deductible. Is it legal to still set aside a designated medical allowance within our budget if we go to a HSA-compatible policy?
Answer: Health Saving Accounts (HSA's) are medical reimbursement accounts that are regulated through the IRS. An HSA is generally only permitted in conjunction with a high deductible health plan. So, depending on how you use the medical allowance, it may impact whether it is legally permitted.
I'm assuming with your current plan, the pastoral staff submits receipts for medical expenses and then is reimbursed up to a designated amount. When you switch to a high deductible plan, it makes sense to take the designated money and deposit it into their HSA account. This is legal as long as all of the pastors are part of a high deductible health plan (i.e. they don't have a traditional health plan with co-pays somewhere else). One other item to be aware of is that the IRS sets limits on how much may be contributed into an HSA account. The IRS changes these limits each year.
October 5, 2010
But churches shouldn't make changes until the IRS issues its guidance.
The small business tax relief legislation just passed by Congress and signed by the president includes a long-awaited provision removing cell phones from "listed property" under federal tax law effective for tax years beginning after December 31, 2009. As a result, the stringent record-keeping requirements that have applied for decades will no longer apply to cell phones or similar devices.
"We expect that the practical impact of the legislation will be that employers will be able to provide employees with cell phones primarily for business use on a tax-free basis, with little requirement to document the actual business vs. personal use," said Mike Batts, managing shareholder of the accounting firm Batts Morrison Wales & Lee, P.A.
September 28, 2010
How a California court may alter a long-standing ministry benefit.
Earlier this month, we covered eight federal issues that local churches should watch closely during the remainder of 2010 and into 2011, according to recent remarks from Dan Busby, president of the Evangelical Council for Financial Accountability. Busby, one of our editorial advisors, is based near Washington, D.C. His role at the ECFA includes advocating on behalf of ministry interests on Capitol Hill, so he’s uniquely positioned to see national tax and finance developments unfold that can influence church leaders.
We took notice when we heard the first item on Busby’s list: a California lawsuit, filed by the Freedom from Religion Foundation Inc., challenging the constitutionality of tax benefits associated with the housing allowances that churches provide to pastors.
The significance of housing allowances isn’t lost on church leaders. For decades, churches have used them to recruit and retain pastors. It’s an especially handy tool that churches with limited means, especially small congregations, can use to lure a gifted person. And at a time when the country slogs out of a multiyear recession, it’s perhaps as useful of a benefit as ever. The down economy has challenged weekly giving and strained budgets for many congregations, making pay raises remain small, even nonexistent in some places.
As Richard Hammar notes in his 2010 Church & Clergy Tax Guide:
“The three most common housing arrangements for ministers are (1) living in a church-provided parsonage; (2) renting a home or apartment; or (3) owning a home. The tax code provides a significant benefit to each housing arrangement … The rules … represent the most significant tax benefits enjoyed by ministers.”
Given the importance of housing allowances, we asked Hammar to give us a deeper sense for where the California case will land.
At the moment, the signs aren’t favorable. Church leaders should begin thinking now about a future in which housing allowances for pastors do not receive federal tax exemptions.
August 31, 2010
What other church leaders are reading and using to keep their congregations safe.
ChurchSafety.com provides expert guidance and risk management information on a broad range of safety topics. We’ve compiled the Top 10 most-downloaded resources from ChurchSafety.com during the past year. Find out what other church leaders have read and used to train staff and volunteers and to develop a safe environment for ministry:
While the number of incidents involving guns at churches remains small, information and preparation are still vital. Begin by assessing the current security of your church. This download gives helpful advice on how to plan for the unexpected, whether or not your church should hire a security guard, and how to deal with the media in the aftermath of violence.
Children are often the most vulnerable members of our congregations, and their presence also presents some of the most serious liability risks. Most churches use minors to assist in various children's or youth programs. Screening these workers will help prevent youth-peer sexual harassment. Institutions can be found guilty of negligence in these cases for not providing security against such abuse. Learn practical steps to properly screen underage workers and access helpful templates for references and interviews.
When crisis arises, are you prepared? Don’t be taken by surprise next time. Learn to respond appropriately to situations ranging from common medical emergencies to crisis involving gunfire. Every church can benefit from forming a safety team that is trained to respond appropriately to various emergencies. This download will discuss the importance of having a team that can handle situations requiring security intervention, medical response, or evacuation.
August 26, 2010
The topics that most interested readers like you during the past year.
I love milestones. And I'm a sucker for top 10 lists (thank you very much, David Letterman). Since today is August 26, it means the TheYourChurchBlog.com turns 1. Naturally, I went back and looked at our 10 most popular posts for the first year.
But before I do, a few observations about our past year:
1. Subject popularity appears diverse: 3 of the Top 10 posts fall under the Law Category, with 2 each under Finance and Safety, and 1 each under Staff and Office (the other post was a general one and didn't fall under one specific category);
2. Our highest traffic day came on February 23, on the heels of our post "Oregon Case Provides a Powerful Reminder to Churches," which reviews the implications of an appeals court's ruling that allowed a pastor's victory in a defamation lawsuit against his former church to stand.
3. The post garnering the most comments was "Where You Work Best," which discusses the pros and cons of worshipping at the church where you also work.
Without further delay, here are TheYourChurchBlog.com's Top 10 posts during its first year:
10. Legally Host a Super Bowl Party: If your church is hosting a Super Bowl party this year, you will need to abide by three simple guidelines to avoid violating copyright law ... read more
9. The Top 7 Resources to Combat Church Embezzlement: Earlier this month, we looked at two recent cases of church embezzlement, and the "zero tolerance" stance judges are starting to take against these crimes. Unfortunately, yet another big headline has since emerged ... read more
8. 10 Questions to Ask About Your Church's Communication: As you approach 2010, consider these 10 questions to discuss your church’s communication efforts ... read more
7. What Will the New Health Care Bill Mean for Churches?: Now that President Obama has signed the health care reform bill into law, many churches are wondering what the impact will be on staffing costs. ... read more
July 8, 2010
How different churches plan to approach pay increases in 2010.
An interesting post recently surfaced in the Church Admin discussion group hosted on Yahoo:
"Situation: Our church is currently very close to our income and expense budget for the current year (fiscal year end in December). Last year, the board chose NOT to give any pay increases, but this year, some of them want to do so in next year's budget.
One board member feels that since some of our congregants are out of work, that we shouldn't give salary increases, even though according to our budget projections, there is no financial reason not to. He is very vocal that we shouldn't even consider raising anyone's pay.Is anyone willing to share whether or not they are giving pay increases, and the rationale behind their decision? I'm especially interested in hearing from churches who are doing okay at meeting their budgets, and whether or not they are considering pay increases."
The administrator's question is an interesting one. If the economy is beginning to thaw—and there is still debate about whether that's actually the case—then should churches currently meeting their budgets consider pay raises for staff? Our 2010-2011 Compensation Handbook for Church Staff, which surveyed nearly 5,000 churches across the country, showed a small decline in salaries in 2009 (after a slight gain in 2008). This means many church staff members haven't received a bump up in pay in quite some time.
Here's how other church leaders responded to the question:
February 23, 2010
An update on key developments during filing season.
Video provided by AGTV. Used with permission.
To learn more about how to file your 2009 tax return and for tax help throughout 2010, order Richard Hammar's 2010 Church & Clergy Tax Guide.
February 2, 2010
Budget shortfalls bring tax-exempt status under fire.
Like countless other municipalities throughout the country, Fort Wayne, Indiana, is struggling to find ways to bridge the gap between declining tax revenue and the costs of maintaining infrastructure and services.
What makes Fort Wayne stand out is the city’s mayor, Tom Henry. Henry is leading the charge for the Urban Mayor’s Caucus of Indiana to tax nonprofit and church-affiliated ministries to help solve his region’s revenue shortfall.
Nearly every town in America is feeling the strain of the economic crisis. As a result, while becoming a 501©3 is a relatively simple process, maintaining a completely tax-exempt status may become increasingly difficult for churches.
January 25, 2010
Known, respected leaders to help guide CTI resources.
Christianity Today International's church management division, which publishes Your Church magazine, the Church Law & Tax Report and Church Finance Today newsletters, plus resources, such as the annual Church & Clergy Tax Guide and ChurchSafety.com, recently formed two important boards for its publications and resources.
CTI invited well-known and well-respected members from church legal and financial circles to an Editorial Advisory Board to bring authoritative and qualified eyes to its work.
The 14 advisors will regularly contribute to the church management division’s publications, websites, and resources, and also will regularly provide ideas, thoughts, and feedback, shaping the articles, videos, books, blog posts, and other resources that guide church leaders on important legal, financial, safety, and administrative decisions.
Noted church and business leaders who will lend their expertise include:
December 17, 2009
A look at the hottest topics facing pastors and administrators.
As 2009 draws to a close, here's a fun look back at the year's 10 most-read posts on TheYourChurchBlog.com. Doing this kind of review often helps us understand the most pressing issues facing church administrators, executive pastors, pastors, and leaders.
And, it's a nice way to showcase topics that you may have missed the first time around.
Here's the Top 10:
December 3, 2009
Rates slightly drop as transportation costs ease.
The Internal Revenue Service today issued the 2010 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical, or moving purposes.
Beginning on Jan. 1, 2010, the standard mileage rates for the use of a car (also vans, pickups, or panel trucks) will be:
* 50 cents per mile for business miles driven;
* 16.5 cents per mile driven for medical or moving purposes;
* 14 cents per mile driven in service of charitable organizations
November 4, 2009
Current legal trends that can help your church assess its vulnerabilities.
For many years, I've closely reviewed litigation involving churches to identify patterns that pastors and leaders can use to assess their own risks and potential vulnerabilities. In 2008, the following five types of cases brought churches to court more than any others:
1. Sexual Abuse of a Minor (15 percent of cases). Sadly, this type of case is typically the No. 1 or No. 2 reason churches wind up in court every year.
2. Property Disputes (13 percent of cases).
3. Zoning (10 percent of cases).
4. Personal Injury (9 percent of cases). This is a Top 4 issue every year.
5. Tax (7 percent of cases).
Based on this ongoing analysis, churches should note the following major risk categories they face and work to evaluate (and to minimize) their own risks:
October 29, 2009
How to handle all types of charitable contributions.
Join us on Tuesday, November 10, 2009, for a live webinar event with nonprofit CPA, Elaine Sommerville titled, "You Want to Donate What? How to Handle All Types of Charitable Contributions" (Click on "You Want to Donate What? on the left side of the page to sign up). Elaine will present a sensible plan to help your church receive and document these contributions with confidence. She also will provide tips on educating members to give donations that comply with tax laws and benefit the giver as well as the receiver.
October 15, 2009
Most churches don't use a program budgeting method--and they're missing out
Earlier this year, we released The Essential Guide to Church Finances by Richard Vargo, a professor of accounting in the Eberhardt School of Business at the University of the Pacific, and Vonna Laue, a partner at nonprofit accounting firm Capin Crouse.
Below is a free excerpt, which discusses the advantages of program budgeting and why churches that use incremental budgeting strategies put themselves at a disadvantage (and, if you like what you see from this excerpt, you can order your copy of Essential Guide to Church Finances here).
October 8, 2009
Research underscores the power of relationships for church leaders.
In fact, it matters so much, the study reveals “donors to religious organizations gave an average of $2,904, or 42 percent more, when they were asked in person by someone they know,” according to an article published Wednesday by Philanthropy Journal.
That stat provides a tangible reminder of the power of relationships. Of course, when it comes to ministry, face-to-face time should matter more than just to land a big-dollar donation. We were created for relationship with the Lord, and for relationships with each other. Relationships matter a great deal to Him. We should strive to maintain healthy, edifying ones with all congregants, regardless of their financial situations, because the fruits of such efforts are eternal.
Keeping that in mind, there are people in your congregation who feel the Lord has blessed them in terms of finances and resources. For a church leader, the key is to learn more about these people by listening to them, and to hear about how their passions might align with the church's vision.
August 28, 2009
Survey: Pastors, church staff nationwide see slight pay declines.
About half the nation’s full-time pastors report they received no salary increase in the past year, continuing a downturn in salaries among top leaders in churches, according to a new survey published by Christianity Today International. In fact, the extensive survey, publishing this fall in the 2010-2011 Compensation Handbook for Church Staff, shows a slight decline or stall in pay levels for the majority of every church employee surveyed this year.
The Compensation Handbook was developed to provide church leaders and employees with a current and reliable picture of compensation practices across a broad spectrum of American churches. It presents survey data from nearly 5,000 churches representing more than 10,000 staff members in 13 ministry positions, both full-time and part-time, ranging from pastors to childcare positions. The survey was conducted in February and March from subscribers of various Christianity Today International magazines, e-newsletters, and web channels, including Church Law & Tax Report, Church Finance Today, and Leadership, a journal for pastors and church leaders.
Among the findings:
• After a slight bump up in salaries in 2008, the new survey finds a small decline reported in 2009.