Church Tax Conference – IRS Forms and Deadlines

Originally Hosted on February 19, 2021
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Webinar Transcript

– All right good morning, everybody. I’ve gotta share my screen here. And so that we’ll be able to keep up together. These are the same thing. This is same thing as my notes pages. And if you’ll notice I’m gonna move my mouse right over here for the notes, go to alsbom.org/ccs and then click on Administrator Resources click out Administrator Resources. Alsbom.org/ccs you’ll find some other things there. You’ll find our notes, you’ll find some links to forms. And one particular form that I’m going to talk some about today is a minister’s estimate of taxes. So we’re gonna be thinking about W-4s today and there’s a special form that I have created. It’s not gonna be a hundred percent accurate but it’s gonna be a simple form. That’s going to be pretty close. And so we’ll talk about that form in just a little while but you can find that form which will help your ministers to estimate their taxes for 2021. So right here, you’ll find my number 3346132241. And my email lwright@alsbom.org. So as we think about these things, let’s move on first of all. Oops, now to okay there we go. Okay, so here’s a list of resources for you, Alabama state board admissions. You’ve got all my contacts right there? Church Compensation Services, which we just mentioned, One Great Sunday and also the pinnacle. And we’ll talk more about those after awhile but some great resources. And then GuideStone is a great resource, guidestone.org/compensationplanning is a very, very good resource. All right so first of all we need to say the IRS business mileage rate for 2021 is 56 cents per mile. Now in December, I had seen it incorrect somewhere and put it in our booklet at 58 cents per mile. And I said that to some of y’all. So it is the incorrect, it is 56 cents per mile and I’ve corrected our financial issues book. By the way, you can find the PDF of our financial issues book at that same website alsbomb.org/ccs, and you can find it there but the business mileage rate for 2021 is 56 cents per mile. All right, there are three new IRS forms. We’re gonna talk about these three today. First there’s the W-4, it’s a new form. It works with the standard deduction, the child tax credit and the lack of itemized deductions for most Americans something like 95% of Americans are not able to itemize deductions anymore because the standard deduction has been doubled and it’s so large. We’ll talk about how that form works. 941 there are some added lines for the Family Medical Leave Act and credits for keeping employees on the job. The rest of the form is just like always but it has some new added lines for doing some things like that. By the way, I’ll mention if you had someone who was quarantined either they were quarantined because of family member or they were quarantined because they got the virus or the recording team because of a child and the it spells it out more clearly that I’ve just stated but if they were quarantined then you are supposed to continue to pay them. And that’s the Family Medical Leave Act of 2020 and you were supposed to pay them. And then you can get a credit on your 941 for paying them and continuing to pay them during that time. Now it’s limited it’s a couple of weeks of pay and then up to 10 more weeks of a reduced pay, but you do need to know that in churches we’re included in that and it’s all employers under 500. So that does include us. The only exception to that is if paying your employees during that COVID quarantine would create a hardship of the business that would cause the business to close. So we are supposed to do that. And then you can get the credit on the 941. We’ll talk about that a little bit more. Then another big news is the 1099 NEC that stands for Non Employee Compensation do not use the 1099 Miscellaneous. Now there’s about one in a million situations concerning a church. There’s about one in a million that would use a 1099 Miscellaneous. But for that, all the others, we will use the form 1099 NEC which stands for Non Employee Compensation. For years, we’ve been telling you to use on the Miscellaneous form. We’ve been telling you to use box seven Non Employee Compensation, but that line is not there anymore. It is on the NEC, so you’ll be using a 1099 NEC for Non Employee Compensation. So as we think, paying somebody, we first got to determine if they’re an employee or a contract worker. And so the first thing that we need to note is the degree of control the employer has of the details of the work which party invest in the facilities use for the work the opportunity the employer the worker has for profit or loss whether the employer has the right to discharge the worker whether the work is part of the employer’s regular business the permanency of the relationship, and the relationship the parties think they are creating when they do this. So those are how to determine whether an employee or contract. the more control we have over the situation. The more likely they are to be an employee. Now, one of these seven, does it, does it change the answer? It’s a balance test, so you would look at the balance. If you had four answers that indicate employee you would go with employee. If you had like, for example oftentimes there’s a worker who cleans the church and the person tells me, well, they come on their own time. They do anything they want to but they use our stuff well just that one, and that’s this number two. But just because they use the church’s stuff that doesn’t negate all the other things. And so that person could be a contract worker. As you look at all seven of these tests. Now the IRS says a three factor test a seven factor test and a 20 factor test. But they’re all about the same thing in that how much control do you have over the details of the work when they come in, when they’re gonna get off how they do their work training for their work, things like that. So if this person is an employee, then we’re about to go down a road of how do we treat an employee later on down the road of today. We’ll talk a little bit about contract workers and the 1099. But one thing that I find is that churches often err on the side of giving somebody a 1099 and that’s just not correct. In fact, the IRS says if you’re in doubt, make them an employee. If you go over these seven tests you’re still in doubt, make them an employee. You can’t get in trouble over making somebody an employee who’s kind of on the borderline. So employee versus contract this is very important taught with the church just the other day that was wanting to give everybody. But two, I think it was a 1099. And in all those cases, except one that was incorrect they should have been making those others employees. Now I don’t mean for you to go overboard and make them an employee when they’re clearly not. But let’s be careful that we’re not making them a contract worker when they really should be an employee. So right now we’re going down the road of being an employee that we’re talking about right now. So for an employee, we need four forms. The W-4, we’re gonna talk about that one a little bit. The A-4, which is Alabama Withholding. The I-9, which is the immigration E-Verify, which is does the same thing as the, I-9, but it is electronic. And this is not required by federal law but it is required by Alabama law. And you’ll see those links right there. And then number five, the NH 1 Alabama New Hire Form. So you’ll find that there for the New Hire Form. You need these four forms. The last two are done online. And so therefore they are set in to the government by doing it online. But the first three are just paper forms and you keep them in the church office. You don’t send those anywhere, you just keep them on file. So those are the four forms. Okay, the most common mistakes that we have is failure to do the forms at all. And sometimes I find churches that are doing that but you’re going to keep these forms. So if you’ve never done it do the first three and keep those on file. Failing to complete these forms on a minister. A minister is an employee in every way except for social security taxes. Now I’m talking today about a minister who serves a church pastor, associate pastor, youth pastor, things like that. Now there are some truly self-employed ministers like for example, an evangelists but that’s not what we’re talking about today. We’re talking about those who serve a church. And then failure to do E-Verify which is required by Alabama law. Now let me look quickly and see if we have any, there we go. Nope, no questions yet. Okay there’s a couple in the chat, but no questions yet. I have to look at the big screen over here to see about chat, which is a lot smaller. Now, some of you in chat, you might want to some of y’all in North Alabama want to, might want to tell us how much snow you had this morning. I’m down here in Prattville but I know that there was snow in Huntsville. I’ve seen some of the pictures and some other places and in North Alabama. So anybody get as much as an inch or two we’ll find out. All right, so this is very important. There is a new W-4 form for 2020-2021. Now it was new last year, but not very many people did it. You were only required to do it if you had a new employee. So I’ve listed for you, the instructions on the form. And for most people, this is really, really easy. And if you have church software it’s gonna be pretty easy too. If you’re doing it by hand then it’s going to be a little harder. And we’ll talk about that. So for most people, the employees there’s really only three considerations, filing status such as married, filing, jointly, filing separately head of household or single standard deduction is $25,100 for a married couple, 12,000, about $12,500. I think it’s 12,550 for a single. And so you deal with the standard deduction because 95% of all Americans do not have enough to itemize. And then child tax credits. If they have children under age 17 this is simple for the employee. Many employees can just complete step one which is your personal information and filing status and then steps five signature and that’s it. The rest of it, it’s optional. So now there’s five steps on the form. Step one is personal information and filling status we just talked about those filling status that they might use. Step two is multiple jobs. Now this is very, very important. This step two. So let me tell you how this is gonna work. If they just do step one and step five and that’s all they do then it’s going to take the standard deduction. And I’m gonna give you this example several times so we can kind of get it in our heads. Let’s say that somebody made $45,000 and they’re married and they’re gonna be married, filing jointly. So the standard deduction for a married couple is $25,100. So you take 45,000 minus 25,000 is 20,000 20,000 at the 10% tax rate is $2,000. That’s what their federal income tax is gonna be. Let’s take a single that that makes 35,000. Well, their standard deduction is gonna be 12,550. So 35,000 minus 12.5 is 23, 20, 22,500. The 10% tax rate is gonna be about $2,250 in taxes. So you just think about that. Now I’m simplifying this, I’m doing it in such a simple form, that to try to make it easy to think about when you actually do the work, you’ll say that you know, you might have to apply the 10% tax rate. And then the 12% tax rate, many of us won’t get into the 22% tax rate. And one thing that we need to understand when you think about your tax rate, when you go into a higher tax bracket, that’s not a bad thing. You know, people think, Oh my goodness I’m going to tax higher tax bracket. I’m gonna refuse my rates. That’s not the way that it works. When you go into the 22% tax bracket that doesn’t mean that you’re paying 22% on all your money. So there is a 0% tax rate for the first for a married couple, for the first 25,000. Then there’s a 10% tax rate for about another 20,000. So if you made 45,000, you’d pay about $2,000 in taxes. And then after that, there’s a 12% tax rate. And then there’s a 22% tax rate. And for a married couple, you don’t get into the 22% tax bracket until your combined income is close to a hundred thousand dollars. So a lot of people can just simply fill out step one and sign it, step five. Now your software is going to take those things into account. If you’re doing this by hand, the way the instructions go for doing it by hand, you’re going to basically almost figure their taxes and then divide that by the number of paychecks that you have in the years is kind of the way it’s going to work. So step two is a very, very, very important step. If there are multiple jobs in the family then this is important. So if both husband and wife work that would be multiple jobs situation. If one has two jobs and the other, one’s not working that’d be the multiple jobs situation and so forth. So if there’s multiple jobs in the family then there’s a box that you can check under step two. And what it will do is say married filing jointly but they check that box. Then it’s not going to use the $25,000 standard deduction. It’ll use the single deduction of 12,550. And that way you have the right amount withheld. So if they both, and let’s say husband and wife were both working then both of them are each on their own W-4 form. Each of them should check that box. And that way the 12,550 would be applied to one and 12,550 would be applied to the other. And that, that way it will come out, right? It’ll come out right. Now actually, yeah, I think that is the number 12,550. So if they check that box it’s not going to take the full married filing jointly standard deduction is gonna take half of it and apply the other half to the other spouse. And so this is very important that they check that box. If there are multiple jobs, this is the easy way to do it. Now, there are some instructions that give you if one of them makes a lot more than the other side say one makes a hundred thousand dollars and the other one makes $20,000. Then you may want to go through the steps to adjust that. There is a worksheet that you can do that a married couple could do and apply more taxes to one than to the other. And there’s a way to do that, but they really, the easy, easy, easy answer is just simply to check the box. If they both are working. Now, notice this down here in yellow getting this wrong will cause a severe underpayment of tax. So if you know I remember when Lynette and I were first married. We both indicated that we were filing jointly, but we indicated, you know married in two cause there were two of us. And so when we both did that, we had a severe underpayment of taxes and being a young married couple. That was, that was tough but you don’t want to get this wrong because it will cause a severe underpayment of tax. Now let’s stop for just a second. And I’m gonna see if there’s any, any questions so far here we go, John said, “I missed the first minute or two. Can we get a paper packet?” Actually it is online at alsbom.org/ccs, that stands for Church Compensation Services. And you can find the financial issues book there. You’ll click on Administrator Resources and you can find the financial issues book. You can find these notes that I’m using right now and you can find other resources there at that place. So the W-4 is very important. We should be doing a W-4 form every year. And here at the State Board of Missions, I’ll tell you we do a W-4 every year. We were required to do that in order to get our first paycheck of the new year. So it’s very easy compliance around the State Board of Missions. So be sure and get stepped two correct. Right now, we don’t have, I was gonna say all of our resources right at this moment are just online and you’ll find those. We don’t have paper copies of things at this point later on when we kind of are satisfied that there’s not gonna be any more changes we will print some copies of the financial issues book 2021. I am on my third version of the financial issue, but 2021 already. And so the one that you would find online today is the latest version. Okay, let’s talk about child tax credits. You would receive a $2,000 child tax credit for each child under age 17 and what the completing of the W-4 form. It will divide that child tax credit among the number of paychecks that you have. So let’s say that that a person is making and I’m going to round this off but let’s say that they’re making $50,000. And so, and they’re the only one working. So subtract 25,000 for the standard deduction. That’s gonna be about 25,000. That is gonna be a little bit more than the it’s going to be first 20,000 and the 10%. That’s about 2,000 and the next part of the 12%, that’s going to be about 600. So 2,600 would be their tax. And then minus, say they have a one child under age 17, minus $2,000 their tax is gonna be $600. And then you divide that by the number of paychecks. And that’s the way that it works. So child tax credit is gonna make $2,000 for each child under age 17. Then step four is they can do adjustments for extra withholding if they would like to. For extra deductions or for extra withholding. And if they would like to add some. And so for a minister, I’m gonna show you a way in which they really should do extra withholding if they want you to withhold on them, the other option is for the minister to do his own taxes. So, and then step five, sign and date. So that’s a basic overview of the W-4. All right, you will find also at alsbomb.org/ccs and click on Administrator Resources, a 2021 estimated tax for ministers. And this one works similarly to the way the W-4 works dated on one page, one piece of paper, I will tell you that I simplified it a little bit to get it on one page. And what I did is I omitted the 10% tax rate and now went on to the 12% tax rate. So this estimate is going to be slightly high. If you’re on through the 10% tax bracket into the 12% tax bracket then it’s gonna be about $400 time for a married couple. And this would be probably making 50, 60,000, 70,000 including housing allowance and stuff. But so get that form, give it to all your ministers. And then what they’re going to do is they’re going to insert some extra money in box four, line four step four on the W-4 in order to make this work out. So let’s say, let’s say a minister let me give you an example. Let’s say a minister makes $45,000 and asked for a $15,000 housing allowance and he’s married and the only one working. So $45,000 minus $15,000 housing allowance is 30,000 minus $25,000 standard deduction is 5,000. 5,000 at a 10% tax rate is $500. Now it’s going to show you on this form. It’s going to show you a 12% tax rate which would be about $600. So that’d be a little bit too much withheld it’s gonna be close. And so about $500 he didn’t owe much federal tax but he owes social security taxes on the full $45,000 social security tax on the full 45,000. and that is going to be about 6,000 to let’s see, 6,007. Let’s see you know, about 6,000 to $400, something like that. He’s got a little bit more than $6,000 in social security taxes. So you could take the, let’s say at 6,500 I’m just making that up plus 500 he owes federal. And you can add that together, come up with $7,000 divide it by the number of paychecks. And you can withhold that as federal income tax do not withhold anything as FICA on an ordained minister, never do that. So you can get a copy of this at alsbom.org/ccs. All right, I’m gonna pause for just a second and see if we’ve got any, any questions about that one? Okay yeah, now this is in the financial issues book and it is online. You might go to these notes that I have and go through the notes again first, but then you can also find it in the, in that same website in the financial issues book. Now next thing we need to determine is this worker an exempt worker or a non-exempt worker? So a non-exempt worker is one that that is an hourly worker. A non-exempt worker is one who does not have special kinds of education or things like that, or doesn’t supervise others. Things of that nature. An exempt worker is one who does supervise others or are leads the organization. And another thing about an exempt worker would be a minister. A minister a minister not necessarily ordained, but a minister who has a ministerial job description is an exempt worker. Now so for non-exempt putting a person on salary does not make them exempt. And I don’t like to think about it as salary but I like to think about it as they’re still an hourly employee, even though you put them on a salary. So let’s say that somebody works 30 hours a week and you put them on a salary, but then the special event comes up. Something really big comes up and they work 42 hours that week. You still got to pay them overtime. If they’re a non-exempt worker. Non-exempt, you must pay for all hours worked non-exempt you must pay overtime. If it’s over 40 hours, a non-exempt, you cannot do comp time except within that seven day work week. So if your work week is set for Monday through Friday and Friday afternoon, everything wrong in getting ready for Sunday, and they’ve worked, you know almost 40 hours and they ended up working 42 hours by the time Friday is over. If that’s the end of your work week you’ve got to pay them two hours overtime. If you set your work week, say to end on Wednesday and that same thing happens on Friday. Then you could tell them, “Hey, Monday afternoon take a couple hours off to make up for what you’ve done today. And then by the time the end of the workweek rolls around they have not exceeded 40 hours. Also about a non-exempt worker. You gotta be careful about how they volunteer. They cannot volunteer in the same job description as they’re paid. So for example, the church secretary, the church secretary really couldn’t volunteer to be the church clark. That’s the same job. The church secretary can’t really volunteer to come in and operate the copier on Sunday morning for teachers. That’s the same job. The church secretary could offer to teach Sunday school. That’s not the same job. The church secretary could sing in the choir. That’s not the secretary’s job. So you got to be careful about volunteering and then the non-exempt workers should complete a time sheet. Now I know that there’s a lot of churches that don’t do time sheets. You really, really, really should. It protects the church because somebody might be taking work home with them. And then you, that person over a long time they continue to take work home later on down the road they feel very neglected and not appreciated. And so they say, “Hey I’ve been working overtime all these years and you’ve never paid me for it because I got upset and you got to pay it. If you don’t pay it, they could talk tell the Department of Labor. And the Department of Labor would come in and make you pay it. And they would, and you would say, “Hey they never told us that they were working overtime.” And that doesn’t matter. It’s that I did the work and you’ve got to pay for it. So exempt and non-exempt, you’ve got to understand that concept there. Now, there are some new Department of Labor rules and these went into effect in 2020, but what some of us still don’t understand these rules. So in 2019 Department of Labor proposed these rules and they became in effect January of 2020. So they’re definitely in effect now. And so employees with a salary below $684 a week or 35,568 a year, you cannot be an exempt worker. You cannot be exempt worker. Now this is not talking about ministers. This talk about anybody, but a minister. And, and so a minister can make $15,000 a year. And many of our bi-vocational ministers, do they care take the kids to camp one week and work all those hours and you don’t have to pay them any differently. A minister is an exempt employee, no matter what. Now this has ministered by job description, not necessary by ordination but by description. So, but this does apply. Let me give you an example here. Let’s say that you have a let’s say that you have a daycare director you have a daycare, you have a daycare director. Let’s say that this person in past years has been exempt. They supervise others, this one’s supervises five other workers. And so and the person made, say $30,000 a year. I’m just making that up but they supervise five other teachers. And so in the past, they made $30,000 a year. Now say that’s not the 35,568. So they ceased to be an exempt worker. And they you must pay them for overtime. And I’ll tell you many daycare directors. They have overtime at certain times of the year maybe in the fall, when they’re cranking up a new school year, in January when there’s new enrollees and things like that. And then in the summertime when they’re creating their summer program. So they do have time periods in which they might work overtime. And you’ve got to be aware of that if they make $30,000 a year you got to pay them overtime for any hours over 40. This is an effect. And now I had this question sometimes you’re not required to increase the salary to the 35,568. In my example, you just, but the worker might just ceased to be exempt and you would have to pay for overtime. So now if this the person let’s say the person that makes 34,000. 34,000 you may want to increase the salary to be above the 35,568 because it might be less expensive for the church to do that than to pay that much overtime. So you’re not required to increase the salary but the worker might cease to be exempt. So we’re gonna talk just a second about a couple of is it taxable questions and then tomorrow we’re gonna spend our most of our time on Is It Taxable? And everything is taxable unless the internal revenue code says that it isn’t. That’s a quote that I got from Frank Sommerville years ago that I’ve always appreciated that quote and kind of what it means. So in the financial issues book which you can get online, you’ll see a chart. We’re gonna talk about that chart tomorrow. But most of our common mistakes are that many are doing business expenses wrong and they are doing something which really is not done correctly, and really should be taxable because the way they’re doing it, many are tree doing medical incorrectly and benefits incorrectly. We’ll talk about that. The package approach, this is where you say, pastor here’s X number of dollars. You divide it up any way you want to that approach results in more taxable income you should be under a system of accountable reimbursements for business expenses and benefits that are provided by the church. And then you talk about salary and housing. So now also another thing that’s incorrect these days many believe that the Affordable Care Act is no more but actually most of those provisions are still there. Still in effect except for the $695 tax penalty if you don’t have insurance, that one did go away. All right another major change is that, and this happened in 2018 but I still find that there’s people who don’t realize it employee unreimbursed business expense is gone, that is gone. So I remember that a pastor has a dual tax status there are an employee for federal purposes. They’re self-employment for social security purposes. And so I’m an employee, I’m not self-employed. And so normally in the past, I would have some extra business expenses I would try to they were not reimbursed, and I’ve tried to write them off on my taxes. And this was an under itemized deductions. That whole line is gone. And that means to the minister, he is an employee. So he can’t deduct any business expense related to his church income. Now, if he does something else, like say he does some some preaching conferences or something like that. And he gets paid on the side, then he could deduct the business expenses that related to that side business because that would be self-employment income. But regarding his church ministry, he would not be able to deduct any business expense at all. That means that he needs to be reimbursed by the church. And this last point the church should provide an accountable reimbursement plan for the minister’s business expense. This should be every church, it should be small churches, medium-sized churches and big churches a like. They should all do that. All right, so what are some of the mistakes that we make as we fill out the W-2? Want to talk some about that? So sometimes we miss the bonus and love offering on the W-2. That’s got to be done. Failure to include gift cards from the church and that’d be from the church. So if I give my pastor a gift card just from me to him, that’s fine. That’s not taxable, but, it would also not be tax deductible for my part. Payments to individual health insurance that are not a group plan are taxable, except for some certain things we’ll talk in depth about those tomorrow but a group less than two. In other words you’ve got only one employee. GuideStone is group insurance. Even if you’ve only got one employee, or you may reimburse for medical expenses under certain circumstances a qualified small employer, HRA or an individual coverage HRA. We’ll talk more about those tomorrow but those are very important and they’re fairly new those two, but they’ve got to be done, right. And you’ve got to have a written plan and you’ve got to treat all your employees or at least all your employees in a certain classification the same. Treating as tax-free the wrong type of life insurance. We’ll talk about that tomorrow. It should be a group play group plan. Group life insurance plan and then many churches have health reimbursements especially for ministers. And almost all of them are done incorrectly. Another concept that you and I need to understand is the concept of cash instead of benefits. Cash in lieu of benefits if an employee may elect to receive cash or benefits then it’s taxable either way. So that’s exactly what the lump sum or package approach does. You say here’s X number of dollars. You divide it up any way you want to. Later on down the road, the pastor thinks, I don’t really need that kind of insurance anymore. I’ll drop it and I’ll get the money. And sometimes their wife gets a job where their wife has the insurance. And so they say, well, since I don’t need my church health insurance anymore, I’m gonna drop that and y’all give me the money. Well, the church cannot do that. If an employee may elect to receive cash or benefits it is taxable either way. And also if you’ve got other employees on staff, it makes it taxable for them. If you allow one minister to be able to do that it applies to the rest of the staff ’cause they would have the same choice. And then it applies to any kind of benefit. But also now this is not benefit, but reimbursement of business expenses from salary reduction is not allowed in an accountable plan either. So you give the money or the benefit that it’s gonna be taxable either way. So therefore the church leaves written policies about the benefits that are provided. And if the church operates under the package approach the only thing the minister can really do is request a housing allowance and get that approved by the church. And then a salary reduction for the church retirement plan. That is one thing that, that money can come from the employee or the employer or both. So those are the only two things if you’re really under the under the package approach those are the only two things that you can really do. All right so we’re gonna take an example here. Mary Smith is the part-time ministry assistant for the church her salary is $12,000. In addition, the church contributes a thousand to her church, retirement plan. Also through salary reduction agreement she contributes a thousand to her church retirement plan. The church provides 25,000 in group term life insurance and under 50,000 is not taxable. So here’s what her W-2 looks like. We see now she contributed and I’ll point down here at box 12. She contributed a thousand dollars to her church retirement plan, and that’s listed in box 12. It saved her on her point up here, it saved her on her federal taxes. So box one just shows 11,000, but box three and five. It doesn’t save her own her social security taxes. So box three and five show the full $12,000. And then box two we had a little over $600 that was withheld from her check. Box four about six, where those social security and Medicare calculations. Social security coming out of her paycheck would be 6.2%. And Medicare will be 1.45%. So it would be a 7.65% total between those two that came out of her paycheck. Down here for Alabama Texas and we should have Alabama there. And the employee’s ID number there. State wages are 11,000 just like up here in box one and state income tax. She didn’t have any withheld, but she could have. And we could have put that here. That’s what a person who is not a minister serving a church what their W-2 looks like. It looks like any other business and it’s just a regular kind of W-2. But for the pastor, we’ll talk about that one. I think we’ve gone over that one. I think we’re pretty much okay on everything. Oh, notice that there was 200, $2,000 contributed to her retirement plan 1000 from the church and 1000 out of her paycheck, but only the one that came out of her paycheck is included on the W-2 in box 12. And so we see that the church retirement plan does not go the, the church contribution does not go on the W-2 and it’s not taxable at all, okay? Here’s the pastor, Pastor Jones, he has a salary of 25,000. He’s requested 15,000 in housing allowance. And he signed a $2,000 salary reduction agreement for GuideStone church retirement plan. The church provides health insurance is a benefit for brother Jones and a thousand dollars contribution into his retirement plan. Now he’s got 2,000 coming out of this paycheck for retirement. The church is sending in a thousand. So the church also provides $60,000 in group term life insurance through GuideStone looking at the chart IRS publication, 15B, there is a taxable amount in this case with his amount and age is $12. And do note that the IRS only allows group term life insurance to be a tax-free benefit up to 15,000. And then there’s a taxable amount beyond that. Say the only there you can’t pay for a pastor’s whole life insurance and that made tax free. You can’t do that. That would be taxable payment. It’s not what the IRS defines. Alright here’s his W-2. He had started out with 25,000. He asked for 15,000 as housing allowance. So that left $10,000. He has to put $2,000 into his retirement plan and that’s here in box 12. So that leaves $8,000. And so $8,000 is in box one and $8,000 is in box 16 for state wages. The $12 comes from the fact that it’s over $50,000 in life insurance. And so that’s put down here in box 12. $12 box C and that’s also added up here in box one. DD they did provide for him health insurance. That’s the code for health insurance. If the church provides it and I’ve listed that as $5,000, that’s just an information thing. It doesn’t create more tax. It’s just showing that the church did it. Now, this is optional for employers, less than 250 employees. And there’s no churches in Alabama that we’re aware of that have 250 employees. So I would say 99.9% of churches will put that there and most will not do it because it is optional. Now this is what a ministers W-2 looks like. Notice that boxes three, four, five and six are all blank. You cannot pay FICA on an ordained minister. He’s got to do his own. Now, like I said earlier, in my example you can withhold extra federal tax. Now this particular minister there’s nothing here in box two for federal tax but you could, you could. This minister let’s say that he’s the only one working and he’s married. And so 25,000 minus the 15,000 house allowances is $10,000. He’s not gonna owe any federal tax but he will owe social security taxes on the whole 25,000 which would be about 3,700, something like that. And he could withhold 3,700 as federal income tax. You cannot do FICA on an ordained ministers minister. And so these boxes are blank three, four, five, and six. That’s very, very important that we do that. All right, common mistakes, failure to include the bonus or love offerings in boxes one and 16. You know if you had a minister who only had housing allowance and that’s all he had, but at Christmas time you give him a $500 bonus. Now you’ve got to do a W-2 and you put that $500 in box one about 16. Don’t put any kind of bonus or love offering in box 14. That’s just an information box. Don’t put it on a separate 1099, just included in box one. And so I’m an ordained minister boxes three, four, five and six are all ways blank. Improperly handling the housing allowance. Don’t put it on a separate 1099. If you want to put in the W-2 it would go in box 14 labeled housing allowance do not include it in box one ’cause if you included in blocks one the minister cannot deduct it. He’s gonna have to ask you for a corrected W-2. Retirement contributions employer contributions are not on the W-2. Employee contributions out of their paycheck are included in box 12. And then if you have a non-accountable business expense you just give them, Hey we’re gonna give you $500 a month for your car. Then that’s taxable income and should be included in box 12 and then health reimbursements where you’d need to do those correctly. Probably in most cases, you’re gonna have a written play. And, and if it’s not done correctly that’s gonna have to be added to the W-2. We’ll talk a good bit of tomorrow about health insurance and how that works and, and health reimbursements. All right, let’s pause here. We’ve done W-2’s before we go into the 941 let’s see if we’ve got any kind of quit additional questions. All right, “Bible vocational pastor has a group insurance plan.” This is from Glenda, If the Bible vocational pastor has a group insurance plan with other employer, but the church pays him a determined amount towards the insurance. Is that amount taxable to the pastor?” If they’re paying for the same thing then it would be taxable, it will be included just like any other income in box one and box 16. Now let’s say that that pastor has group health insurance with another employer, but it doesn’t cover his family. And you want to reimburse for his family. You’ve already said, it’s a group insurance plan so you can pay for it. And, and this is for the rest of the family coverage. You could reimburse for family coverage. Now you would have to know how much the difference is between what that employer’s providing. And the difference for family coverage. You’d have to see a bill and stuff like that but you could do it. Now, there’s one caveat to that. A lot of times, if he has family coverage taken out of his paycheck with the other employer then a lot of times that other employer will set it up where that can be done, tax free. It’s called pre-tax and it’s tax-free. Now, if that’s what’s happened and you reimburse it it’s not gonna be tax-free because you can’t you can’t have something tax-free twice. So you do need to know that if you’re reimbursing or say the difference in family coverage let’s say that you’re reimbursing his coverage. He’s got coverage through his other work but you’re just reimbursing then that is taxable and included on the W-2. All right, good question. That’s a very important question. As we look at these things about health insurance and like I said, we’ll be talking about health insurance a good bit tomorrow. Okay, now let’s look at the 941. So first in the first box and I’ve just got lines one through five, really. Because that’s the part that’s different about a church. The rest of it is just pretty standard. So the number of employees, in my example, you know we had the ministry assists and we had the pastor. So the number of employees is two. Whoops Okay, number of employees is two, the wages and other compensation you include the pastor’s income up here, but not as housing allowance. So $2,000 for the quarter. And Mary’s really was 3000 for the quarter minus the part that went into her church retirement plans. So 2750, and we get 4750. The total income tax withheld was $150. Pastor did not do any withholding. Now, when we get down here to box five do not include the pastor there just to include the ministry assistant $3,000 times .124 is three 372. $3,000 times .029 is $87. And so that’s the social security wages and the Medicare wages. And you calculate that. And then you add these numbers together. But the main thing that’s different about 941 for a church is first. You do include the pastor in the employee count. Remember he is an employee. You do include his salary, but not housing and line two but you do not include him down in box five in these boxes at all. So that’s about a 941. And notice that Mary’s contribution to her church, church retirement plan. It did reduce her federal wages but it did not reduce her social security Medicare wages. Now here’s one thing that Jo Ellen Johnson, our CPA taught me and I used to get this phone every January, third, every, and I get it three or four times. But I think that her message is getting out and she’s doing a good job of that. So do not follow your last 941 yet. And the reason for that is if you have a mistake somewhere you want to catch that mistake and then file your last 941. So print out your W-2’s on plain paper by say the 15th to the 20th of this month, somewhere in there. You know, now I know some of you might be a little past the 20th, but try to do that by somewhere around the 15th to the 20th have employees check for mistakes. They’re W-2 do you say anything? That’s a mistake, anything unusual? There’s some, otherwise you can double check your W-2’s and how they compare to the 941. You can do those comparisons. And so you’re checking for mistakes and then you can print it out on plain paper so that you haven’t done it finally yet. And then when you’re satisfied that everything is correct then you can go back and file your 941 and print out your W-2’s for each employee. Now, of course, you got to do the 941 before January 31st, but I get this call off January 3rd. “Uh-oh well, we’ve done our 941, our last 941 already. And it’s wrong. I’ve done some further checking and I know that’s wrong.” Well, now you’re gonna have to do a 941-X. So if you just wait just a little while then you might find it a mistake that you can correct on that last 941 and not have to file a 941-X. So don’t file it yet. And wait and check, do a lot of checking before you file that last 941. And like we said, earlier, ministers should be included in the employee counts, ministers wages but not housing should be included in line two. Minister, federal withholding if there is any would be included in line three and do not include the minister in lines 5. So, and then you’ve got the deposit, the check, the tax when needed, whether you’re on a monthly basis or even more often than that. Additional steps Alabama has similar forms. Alabama forms are very easy much easier than the federal forms as a rule. And the Alabama forms are also done online. So A-6 is monthly if you’re required to do that, A-1 is quarterly and so how much did you withhold out of paychecks and have you sent it in and or do you still owe some that you’ve got to stand in the state of Alabama? A-3 is the annual similar to the W-3 for federal. You’ve got to do your W-3 which summarizes all of your W-2’s. And so you got to do that. These are the things that have got to be done. And then the, of course, the 941 at the last 941 of 2020, it’s got to be done before the 31st. Now a few people might be doing a 944. It’s like the 941, but it’s annual. And it’s when your pay is, you know, you’ve already got an employee or two and your pay is very low and you might be able to only file once a year, rather than each quarter, your 1099 and your 1096 transmittal forms are due. And then if you’re a large employer, 50 or more than you have a 1095 or at a 1094, that’s due that’s about your health insurance. So here’s the new form. This is the 1099 NEC stands for Non Employee Compensation. It’s a simpler form than the 1099 Miscellaneous. It’s going to be easy for you to do you just put in their information and the church’s information. And then you put that Non Employee Compensation right here in box one of the NEC, right there. And that’s all there is to it, but you cannot use a 1099 Miscellaneous for Non Employee Compensation anymore. This is for all your contracts workers. This is for new for 2020 to be given to your non-employee contract workers in January of 2021 which we’re there. And so do not use a 1099 Miscellaneous. I had somebody Angie called or texted me yesterday that she was having a hard time with the IRS that they weren’t available yet or maybe they were out of stock. And I did find that you can find these forms at office supply stores are like Sam’s Club. You probably have to get them online. I haven’t seen them in the stores. I used to see a packet in the store in the Sam’s Club. I haven’t seen those recently, but I’m sure that you get them online these days. And then always obtain a W-9 on any contract worker that you’re going to pay. Do that in advance it’s gonna protect you down the road just to let you know whether the person is incorporated or not. So you have to provide a 1099 for any worker who is not incorporated and you give them $600 or more for the year. It’s gonna give you their tax ID number or their social security number, and a lot of churches and other businesses get in trouble. Because if you don’t have a social security number from that person that you need to give a 1099 to you’re still supposed to provide the 1099 but you’re just gonna leave that blank because you don’t have it. Your church will be penalized for providing a 1099 without a social security number. And you’re recording to do backup withholding on that person of 28%. And you probably didn’t do that. And so the church is gonna have to come up with that backup withholding and pay it. And so these are some problems. If you don’t have the social security number you’ll want to say to that person as you’re about to pay, “Hey, I’ve got your check ready for the work that you do and for our church but I can’t give it to you until you fill out this W-9. Just an easy form, just fill it out real quick. And then I’ll give you your check and that way you’ll be safe and you’ll have their social security number and not have to track them down, this time of year to track them down to get their social security number. So if it’s an employee, you’re gonna give them a W-2. If it’s a contract worker you’re going to give them a 1099. And so the 1099 involves the W-9 that you give their social security number, the 1099 and then transmittal forms 1096 if they’re a contract worker. So we’ve gone down both paths we’ve gone down the employee path and we’ve gone down the contract worker path other forms that you’re going to need to do. They possibly the 1090 T I mean 990-T. This form is used if the church has unrelated business income it is a trader business. It is regularly carried on and it’s not substantially related to the organization’s exempt purpose. For example, I’ve known of churches that have had a coffee shop that’s open to the public or a bookstore that’s open to the public. I knew of a church that bought that needed land and they bought up houses around them and they rented out those houses to pay the mortgages until they were all paid off. And then they use that land for the church. So there are possibilities where a church might have to fill out 990-T another one, there’s a few churches who have a cell tower that their land is being rated for one of the S cell phone providers. And that cell phone provider pays them each month. And that would be unrelated business income. So these are some examples. If you have to do the 990-T and very, very few churches we’ll need to do it, but if you have to do it, it’s due May 15th. If you’re on a calendar year basis. For schools and daycares you need to fill out the 5578. It’s just a simple half page form that says that you’re certifying that you did not discriminate applying to your school or daycare and the daycare or school has a curriculum which you would definitely want to do. And the form states that the school had missed the students of any race, nice and all the rights and privileges and programs and activities, and it’s to May 15th you’re also supposed to advertise that a racial non-discrimination policy in the local newspaper, supposed to, I’m not sure how many people are doing that but that’s part of the instructions. Okay, let’s take about a five minute standup break. I’m gonna get a sip of water and then we’ve got more to go, but feel free to take a standup break while we’re doing that. I’m going to look and see if there’s any other questions. Okay, we’ve got a couple more questions. Let’s start with those. And then we’ll pick up with what’s new and Oh and I’ve got it wrong what’s new in 2020. Well, we’re actually going to talk about what’s new in 2021. I just didn’t correct that number right there. Okay, “Is the pianist at employee?” Is the pianist an employee? And the answer is yes. Yes, you should never ever give the pianist a 1099. Now if you had a guest pianist that comes in for special concert and you paid that guest pianists $600 or more, yes, you would give them a 1099 but I’m talking about your regular pianists for the church. You would never give them a 1099. Here’s why you think through those tests is this person, does this person have to be here at a certain time and leave certain times? And the answer is, yes they’ve got to be here for those services. They’ve got to be here for the Wednesday night rehearsal or whenever the rehearsal is they’ve got to be here at certain times they play what we say to play, how we say to play it, things like that. Does this person have opportunity for profit or loss? Not with what they do to play for the church they just get paid for what they do. Does the person use their own equipment? Which would indicate contract worker and the answer’s no they use the church piano and they use the church’s music. And all those things belong to the church that they’re using as they do what they do. So a pianist is always an employee, like I said except for like a concert a pianist is always an employee and should always get a W-2. Hope that answers that one. Now let’s look at this one. Did you say that box 12, only lists what the employee had withheld, not what the church paid? Yes, this is regarding retirement contributions, retirement contributions. And for us it’s retirement contributions into the church retirement plan. And so the employee contributions, you would put in box 12 the employer contributions that which comes from the church. You don’t list it anywhere on the W-2. It’s a benefit, it’s a non-taxable benefit. So that, that is correct. Only list what the employee did had withheld out of their paycheck, salary reduction agreement. And then the part of the church paid. You did not list that, okay? We’ve got another question. “We’ve got three people in our church that receive a love offering for what they do to help the church throughout the year two pianists and one audio video operator. How do I handle that? Are they exempt or do I file a form for them?” Now we need to, we really need to separate volunteers and employees. Volunteers, we should keep if we want them to be a volunteer if they want to be volunteer, we keep them a volunteer. We don’t give them money. Now you could, if you want to you could give them a tangible gift of low value. You know like say the pianist that is a volunteer, not paid. And so you give the pianist to the two dozen roses they’re on the piano, you know and that sort of thing, you could give volunteers some kind of a tangible gift, but don’t give them money. If you give them money, you just made them an employee for that quarter. And by making them employee, you need to give them a W-2. So people who are volunteers for the church and then you pay them, you just made them an employee because you go through those tests, they are not a contract worker, you know and that’s what some people think they think, well it’s not $600. So we don’t have to give them anything but say a volunteer for the church. They do have to be here to teach Sunday school. At the right time, they are using church equipment the Sunday school book, they are doing things as we direct we directed them to use this curriculum series rather than the other curriculum series. You know, that sort of thing so if we were going to pay them they are an employee and they would need a W-2. Then you get into all kinds of other things like minimum wage and stuff like that. So if you want to give them a gift for volunteering don’t make it money, make it something tangible. But in this situation, they’ve already done it. They’ve given a love offering. And so you’re going to have to give them a W-2. And the limit on W-2 is it’s a hundred dollars or $104 or something like that. It’s a very, very low threshold that you would need to give them a W-2 and say the pianists audio, video operator, they’re doing work for the church. And another thing that Frank Sommerville taught me a long time ago, and I’ve always remembered this. It’s a simple formula, very, very, very simple. You perform work, you get paid. Therefore it is taxable income. You perform more, you get paid. It is taxable income. Now let’s say benevolence, for example we give them money and it’s a benevolent need. They did not perform work. And so, but we pay them, but it’s a gift, it’s a gift. And so that’s the way that, that works. We don’t for a benevolent need that we’ve checked out. And we know it’s benevolent need we don’t have to give them a 1099. Now I will say that benevolence to an employee your employee has a benevolent need. You give that employee money. That is gonna be taxable, but to a regular benevolence case, that would not be taxable. But in this case, these two, the pianist and audio video operator, they performed work. They got paid, therefore it’s taxable. Therefore you’ve got to give that person the W-2 okay? Let’s move on. Brad says, “Why do you use code F and box 12 rather than code E, which is for a 403b plan.” Okay, code E is for a 403b plan. And that’s the code letter and GuideStone’s church. Now I’m talking about the church retirement plan. It is a 403b plan. And so that’s the code letter you would use if your church had a 401k you’d use a different code letter. And in fact, GuideStone does have a 401k but GuideStone serves some other kinds of entities like baptist hospitals and colleges and stuff like that. But that is the code letter for the church retirement plan. Okay, “Did we used to give a pianist a 1099?” I’m sure there’s lots of churches who have given a pianist a 1099, but it’s not correct. A church pianist should receive a W-2. Also another one that you need to think about church nursery workers need to receive a W-2. You tell them what time to be there what time they’re going to get finished. You, they do what you ask them to do. You direct their work and you provide for them some training. And so they need to have a W-2. So the pianist should receive a W-2. Receiving a W-2 that also means that you need to be withholding taxes and withholding and matching FICA on those because you’re gonna give them a W-2 and they’re not a minister. So that say many times churches want to give somebody a 1099 because they don’t have to withhold taxes and they don’t have to withhold and match FICA. But, but if they are an employee, they must be treated as an employee and a church pianist would be an employee. So we need to give them a W-2. All right okay, all right, I’m going to close that box and we’re gonna move on, okay? I hope that was helpful, those questions. I hope so and if you’ve got further, kind of wanted to go deeper into one of those questions, just email me and I will be glad to, or even, you know give me another version of the question tomorrow and tomorrow session then, or even later this session we’ve got a few more minutes. All right what’s new 2020? Actually 2021 what’s new. And we’ve talked about some of those things, but we need to talk about a few more. So as we think about that, first of all, there are reasons sources and see, okay. There are resources listed in the financial issues book. You can get the financial issues book at alsbom.org/ccs and click on Administrator Resources. I’ve given you here all my contact information and my cell phone number. And when you get the notes I know this’ll part of the screens covering up but when you get the notes, you’ll see it. Church compensation services, follow the State Board of Missions on Facebook and Twitter things like that for news and events. And then GuideStone is a wonderful source especially guidestone.org/compensation planning guidestone.org/compensation planning. A reminder that the mileage rate for 2021 is 56 cents per mile. There are three new IRS forums. We’ve talked about these W-4, the 941 is different for the lions for family medical leave. Now that is Family Medical Leave Act 2020, it is different. The Family Medical Leave Act, the original one was that you were supposed to give 12 weeks unpaid leave to people who had a family medical leave. And it was unpaid, this new one is paid two weeks and then possibly an additional 12 weeks at a reduced amount of pay. And it is Family Medical Leave Act 2020 the 2020 did expire. And so it’s not in effect anymore, but you may do it. You may do it voluntarily. And if you do it voluntarily, you may still get the tax break on your 941 for 2021 if you would like to do that. And then of course, the 1099-NEC. Okay, so Family Medical Leave Act of 2020 did require you under 500 employees to pay the employee when and there’s five different things. When they’re subject to quarantine order, when they’ve been advised by a healthcare provider to self quarantine when they’re experiencing symptoms of COVID when they’re caring for an individual who is subject to a quarantine order or they’re caring for son or daughter of such employee if the school or place of care has been closed due to COVID. So you’re still supposed to pay them, but you can apply that on your 941 for a credit. And it was to be done in 2020. It has expired for 2021, but you may do it voluntarily and apply the credit or the credit. Alright, there is a new stimulus that was December, 2020 and provided $600 stimulus I say check. It’s actually electronic deposit for most people per adult for persons making up to $75,000 or for a couple making up to $150,000. And you should be receiving those $600 stimulus checks. If you haven’t already done so. Now, if you normally do a paper form your tax forms by paper that is going to take longer for you to get a paper check. There are new unemployment benefits. There’s an extra $300 per week for 11 weeks. So it’s a reduced amount. It’s not the $600 per week, but it is an extra $300 per week from the federal federal government. And there is a new round of PPP loans that was paid Paycheck Protection Program Paycheck Protection that’s easy to say. And those loans are to small businesses and churches do qualify and you can qualify for loan forgiveness. This will be the third round of PPP loans and I have heard from a couple of churches who have been through the process and they have received their loan forgiveness. So you can apply for that, just a suggestion. You probably want to use your, your smaller local bank. The big banks have not, in fact, the big bags cheated and gave some of them to companies that were too large to qualify but perhaps hopefully the big banks will do it correctly this time around. And, but things that I’m hearing are that people are having better luck with their small local bank. All right, now we, we do need to remind you of this because many churches are still doing this wrong. This happened in 2018, but churches some surgeons still don’t realize it. Churches do not have, and pastors do not have employee unreimbursed business expenses as a deduction any more, no person who is an employee can deduct business expenses. You’ve got to be reimbursed by your church. And that’s the only way you can receive that money. You cannot write it off on your taxes anymore. And so if you’re, let’s say you’re given a $4,000 allowance for a car and business expense, that’s just taxable money. And it goes on the W-2 the way to make it not taxable is to provide it. According to the rules, you it’s a reimbursement you’ve got to follow the rules and what can be reimbursed. The minister will have to turn in a form at least every 60 days to be reimbursed. The form has to show, date, place, purpose and number of miles in the case of mileage. And then things like a hotel receipt for say convention or something like that then they would turn in the receipt to the church. You may use the right the daily rate that the IRS puts puts out. But I don’t know any church that does that. Most churches that I know of, they want the exact receipts and exact amount on those receipts. And then of course the other thing is moving expenses were eliminated as being tax-free also two years ago. So if you move, say you get a new pastor and he moves from somewhere else and you pay for that, move that move goes on the W-2. And that’s a tough one to swallow but I know with state board admissions, since 2018 we had a new employee that had to be moved. And I know Jo Ellen was really kind of grimacing to think about that, oh, I’m gonna have to put this on their W-2, but that’s the way it is right now. Now we want to talk just a little bit about charitable contributions. I know that I told you that the last session I’m gonna talk about charitable contributions but I want to talk just a little bit about it. This is found in the book in the financial issues book. You can find that online on at www.alsbom.org/ccs and click on administrative resources. So there are six requirements for charitable contributions. Number one, it is a gift of cash or property. Cash means cash checks, bank transactions. Like, you know, if you take credit cards as a church so that would be a cash transaction. Property would be actual physical property. That could be a car, it could be real estate, it could be jewelry. It could be any kind of, it could be a used computer or a new computer, but any kind of gift of property. It is claimed as a deduction in the year which the contributions made. Now, every year we get the call. Somebody wants to give you something January 3rd, can this go on last year’s contribution. And, and no, it cannot. The only thing about that, that would be a 2020 contribution would be if they mailed it say December 30th, 2020. And you just happened to get it January 2nd that would be a 2020 contribution but it’s got to be a in your hands in the church’s hands in 2020 by December 31st, 2020. Another one that would be a 2020 contribution would be let’s say that they were sitting by their computer and it’s 11:59 on December 31st. And they make a electronic contribution to your church right then. And you will obviously wouldn’t get the money until 2021 but because they made the transaction in 2020 and it was unconditionally delivered, you know they can’t take it back. Then that is a 2020 contribution. But our typical question is January 3rd cannot make this a 2020 contribution. They’re standing there wanting to give it to you and you have to tell them, “No, I’m sorry, you cannot. It’s gotta be a 2021 contribution.” Number three, contributions that unconditional and without personal benefit to the donor it’s unconditional without there’s no strings attached. Number four, it is made to, and for the use of a qualified charity and a church as a qualified charity. And so it’s made to and from the use of the church, number three and number four, indicate church control. Number five the contributions within the allowable legal limits and number six, it’s properly substantiated. So we talked about the difference between cash and property but it’s important to know that that number three down here time and labor are not tax deductible. A lot of times you’ll get somebody in the trades that will say this, “Hey I brought my backhoe and I did this work for the church. Here’s my $800 bill but instead of paying me why don’t you just put it on my contribution record?” And you cannot donate time or labor. I mean, you can donate it, but it’s not tax deductible. And then the use of something is not tax deductible. So the person loaned their backhoe to a person in the church who knew how to work it and didn’t give it to the church but just loaned it to the church. That’s not tax deductible either. So time and labor are not tax deductible. Okay, then number three and four church control is unconditional and it cannot designate a particular individual. You cannot designate a particular individual. So this question comes out throughout the year. Somebody wants to give money to the Smith family. They have a need. And so here’s $500 I want it to go to the Smith family. You cannot do that. And it be tax deductible. So you will have to tell that person that’s not tax deductible. You might give to benevolence, our benevolence team will check it out. And you’ve got to know that that money might go to the Smith family, it might go to other families who were in need as well. And so the church decides who gets what and what is the maximum. Now the church also just about a love offering this number three. This will be about a love offering to staff members. A lot of times somebody say in July, “I want to give $500. I want it to go to the youth minister.” Well, that is not tax deductible because number two, I can’t designate to an individual you know, how do we do the love offering for all the staff? The way we do that is the church controls it, church sets it up. The church establishes who else is included in the love offering. Like, you know, are we just a ministerial staff? The full-time staff, the, you know, part-time staff who are you know, what about say nursery workers? So they gonna get it or not. And many churches will give it to everybody who gets a W-2 from the church. So the church decides when it’s done, how it’s done, how it’s divided up. And I can’t specify my part of the love offering to go to a particular staff member. You know, I can’t say, “Hey, I don’t want to give that way. I want my money to all go to the youth minister.” You know, you can’t do that. And it may be tax deductible. I’m following what the church does. So the church sets policies for designated offering. Now, benevolence, if it’s a love offering the church is gonna control it. You may do it, but you got to control it every step of the way and instruct the people to just write benevolence in the four of their check and instruct the church that if if more than is received than the need then you’re gonna be helping additional people. So it’s not gonna be guaranteed that a hundred percent of this money is gonna go to the person that you indicated it might go to help other people just depending on what the benevolence team decides. Contributions which are not deductible. This is an IRS list. And the IRS list always begins with number one contribution designated to a specific individual. All right substantiation and I did want to talk just a little bit about this because some of you are getting to do this contributions statements must be received before the return is filed by the tax payer. And that’s odd to me that other paperwork can be received after the fact as long as I knew what it was, but about a contribution. You can’t, you’ve got your receipt of the statement before following the taxpayer and they can if you’re audited, they can’t ask that question. When did you receive your statement? And when did you file? The IRS says that recipient organizations typically sending acknowledgements no later than January 31st. Now that’s not a law. That’s not a legal requirement, but that’s the suggested day. That’s a recommendation from the IRS. On your substantiation, your statement is going to have the name of the organization, the date, and each contribution has got to be itemized. Now, actually I’m simplifying that really. You only have to itemize those contributions that are $250 or more, but if you’re gonna do that, it’s gonna get really, really complicated it’s so much easier just to itemize every contribution, whether it’s $5 or $500. And so it’s just real easy. It’s also easy if you ever have to track down a contribution and verify it. So just optimize every contribution, the amount of the cash contribution. But if it’s a non-cash contribution like property then you have to have a description of it. But do not indicate the value of that gift, just script the date that it was given and the description of what was given. And then every contribution statement, whether you’re giving the personal letter, a contribution statement that’s printed or whatever, you need at the end of the statement, you need a statement that no goods or services were provided by the organization in return for the contribution. And so you got to have that on there. Now, there are a couple of different wordings for that. You could say, no goods or services. You could say only services of a religious nature were given in exchange for your contribution. That way you say intangible religious benefit is the only thing that’s given in exchange for your contribution, that sort of thing. But most of us just put no goods or services were provided by the organization and in return for the contribution. If you did receive something then you’ve got to describe it. And oh no, if the person, if the donor receives something you’ve got to describe what was given and the value that was given. I’ll give you an example of this. We as churches hardly ever do this, but a lot of groups. Now I’ll use Alabama Public Television as an example, you know, when they have their emphasis of donation weeks, they’ll say if you’ll give a hundred dollars, we’ll give you this DVD. If you give $250, they’ll say we’ll give you this DVD set or whatever. So see they’re giving something in exchange for a donation. And they do have to indicate that when they do that most of us as churches don’t do that. But we do have to estimate anything that’s given in return. Now let’s take another example. Let’s say we have a spaghetti supper. This is to raise money for the youth. And so you would, and so if somebody gave $10, don’t give them a statement. But if somebody gave $7,500 for that youth supper then you could say, thank you for your donation of $100 given to first Baptist church, January the 15th. No, instead of saying no goods you would say in exchange for your contribution you received a dinner with an estimated value of $10. And then they would subtract their $10 from their hundred and get a on their record. They would show $90. So you, you need to do that. If you do give something in exchange now less than $250 the IRS will accept a canceled check our receipt or letter from the church. Now this is less than 250, it’s gotta be one of those two. If it’s $250 or more the IRS will only accept the receipt from the church. So, you know you could have given $500 once a month and you could go into the IRS and they should question your giving record. And you say, well here’s all my canceled checks, which these days canceled checks are usually a copy on your statement but here’s all my canceled checks. And the IRS will say, I’m sorry, this is denied. But I’ve got my canceled checks. It doesn’t matter, we’ve got to have that statement from the church. And then this is a must, any kind of letter that you provide statement you provide about giving. You need to say no goods or services that were provided in exchange for the contribution or only intangible religious benefits were provided in exchange for the contribution. All right, let’s see about a little just a little bit ahead of time. And that’s what I want to do. ‘Cause it’s hard to to do a meeting of this length, but what questions do you have? And I’m gonna stop sharing. Let’s see and get back to the chat. Here’s our questions. Let’s see if there’s any more. Okay, “We’ve been paying a pianist without any withholding.” You should, you know, you should do it. The, best answer would be to fix it for 2020. That’s gonna call for you to do a corrected 941 which is 941-X and issuing a W-2. Now, pianist, let’s say that they make a hundred dollars a week and I’m just making that up at $5,200 for the year. They’re not going to have any federal income tax withheld unless they ask for more to be withheld, but they would have the social security taxes, 7.65% out of their check and 7.65% from the church, which, you know you would need to pay. Some and I would suggest that you talk to a CPA some might suggest start correct with 2021. And I’d suggest that you talk to a CPA about that. Or you can go back and fix 2020 with the right, with the right one. Okay, Jack Anderson you mentioned paying quarantined employees for that time. We have one 20 hour per week employ. And that they did not discriminate or make a distinction between full-time and part-time and you would do two, if they were quarantined or if they had COVID or if they had a child whose school or daycare was closed then you could pay full pay for two weeks. And then there’s a partial pay for up to 10 weeks. And Jack remind me and I’ll send you a link to the government explanation of how to do that. Okay, if anyone failed to pay a quarantine worker. I would suggest paying it now. And, you know, and getting up to date on, on that. Now the IRS did give one exception. If the paying the worker in danger the viability of your, of your business, like, you know make your business go out of business. But other than that, we were supposed to have done it. Now many daycares, for example many daycares just simply closed because they, you know they were worried about having to pay people and would they have children and would they have children to have provide the revenue, their parents provide the revenue to keep, you know keep in business. But if you stayed open and kept going you were supposed to pay those who had been quarantined. Now, if somebody just stayed home ’cause they wanted to, or they were afraid but not actually quarantine, then you probably wouldn’t. They give the reasons in the government information. But I will suggest paying it now. You might want to talk to a CPA about paying it now. Okay, how do we get in compliance with Alabama if we’ve not been using E-Verify NH 1? I wish I could say this is hypothetical but what you would do is you would just start right from now on. And so you want to do the W-4 and A-4 and the I-9 And those, you just keep on file. You, you don’t do E-Verify or NH 1 unless it’s a brand new employee. So for those employees you’ve already had on your payroll you would just start fresh now and do it correctly now. But be sure to do those first three. W-4, A-4 and I-9. “Okay, would we need to go back? And include quarantine pay in 2020’s wages?” Chris I’m not sure exactly. Are you talking about that you did pay them and you want to take the credit or are you talking about you did not pay them if you did not pay them and you’re going to pay them in 2021 then you would include that in 2021’s wages and then you would use the 941 to take a credit about it. If you just simply didn’t take the credit you could go back and do a corrected 941, 941-X. Not a hundred percent, which about your question which way you’re going with that. But I think I’ve answered it. I think I’ve answered what you asked if I have it just email me and I’ll be glad to. “Can you briefly expand on contribution statement itemization? In other words, if you give your statement to a church member and they gave $5,000.” So some churches would just give them a statement for 2020 you gave to first Baptist church, $5,000. Well, that’s not adequate for it is required that every gift of $250 or more it’s required, that those are itemized. So date and amount know so January 15th, you gave $500. For February 15th, you gave $400, you know, so forth. That’s required but I think it’s so much easier just to itemize every amount with the date so you’d show January 15th, $500. February 15th, $400, March 15th, $250. You know, that sort of, April 15th, $10. I think that’s so much easier to do it that way and to itemize every gift on the statement. Hope that when the answer that question and I think that’s all of our questions for right now. If anybody has further questions, email me lwright@alsbom.org or simply be here tomorrow. We’ll be here from 10 till 12. And I’ll be glad to answer any question you may have. Thank y’all for being involved and participating and great questions. Y’all had great questions today. Let me close this in prayer and then we’ll be dismissed. Father, thank you for today, thank you for a good group of people and the questions they have, the very wise questions that they’ve asked that apply to so many of us. I pray that you’d be with us all and especially during this important time of getting things done correctly and do all things in order as the Bible asks us to do. Help us to be wise as we do these important tasks in Jesus name amen.

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