Church Tax Conference – What Is Taxable?

Originally Hosted on February 22, 2021
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Webinar Transcript

– So today we’re primarily gonna be talking about, is it taxable in 2021? And there’s a few things that are new that we need to talk about. Very first thing I want to talk about before I forget it. The new mileage rate for 2021 is 56 cents per mile, 56 cents per mile. Earlier in December, I saw somewhere reported at 58 cents per mile and that was incorrect. And then the IRS came out with a mileage rate, actually on December 22nd, I think that may be as late as it’s ever been reported. But the new mileage rate is 56 cents per mile. Now, today you can find these notes that I’m using today at alsbom.org/ccs, that stands for Church Compensation Services. And that is the page that I have for our website, alsbom.org. And then you click on administrator resources. You will find our notes for today, you’ll find our notes for yesterday. You’ll find a minister estimate of taxes for 2021. How a minister can calculate their estimated taxes and they can either do, divided by four and make four quarterly payments as estimates or they can divide it by the number of paychecks that they receive from the church and ask the church to withhold federal income tax. Now, you can withhold federal income tax and state income tax only, you can not do FICA on an ordained minister. But you’ll find those kinds of resources. You will also find the new financial issues booklet 2021, right now that is just a PDF resource only. We don’t have any printed copies of it yet. It’s still changing, I have changed it three times just since January 1st and there might be some more changes coming as well. So it is there as a PDF resource as well as these other resources. You can find these notes for today there. Now, also I’ve listed my email address and my direct line phone number that you may use. And now, often it goes to my cell phone, I’ve got it set to automatically go to my cell phone and it often does that because we are working often from home these days of COVID. So you’ll know that and that’s what’s going to happen. All right, now here’s a topic that I wanna talk about, I’ve never talked about this topic in a workshop before, but I think it’s important. It’s pretty often that I’m getting the question, we want to ordain our youth minister. our children’s minister, some other minister of the church besides the pastor. We want to ordain that minister. And the reason we want to ordain, is so that they’ll get the housing allowance and they’ll save all that tax money. But I want to tell you today, don’t think like that, it doesn’t work that way. Now, I know that housing allowance is a wonderful benefit, however, that minister also has to pay their own self-employment tax, which most of the time offsets the benefit of the housing allowance. And in fact, many young ministers, especially like a youth minister or children’s minister that you might think about wanting to ordain for housing allowance, many young ministers and those types of ministers, oftentimes, they come out worse tax wise. So ordination is not about taxes, ordination is about calling and you only want to ordain those who are called to ministry and it’s a matter of calling. So, here is a difference between a non-ordained youth minister and an ordained youth minister. And this youth minister is married and we’re just making up this situation as an example, youth minister makes $45,000, so let’s look at non-ordained. So the youth minister makes $45,000, we’re just keeping this as simple number, less $25,000 for the standard deduction. That’s what the standard deduction for a married couple is these days, actually it is $25,100, but I’ll just use the round numbers just for simplicity. So $45,000 less $25,000 standard deduction and the federal tax on $20,000, the difference between those two is $2,000, 10% tax rate of $20,000 is $2,000, that federal tax on $20 should read 20K, is 2K, but mistake. $2,000 tax on $20 would be pretty steep tax, but actually that should read $20,000 taxable income would result in $2,000 tax. His portion of FICA is based on the 45,000 and his portion of FICA is 7.65%. And his portion of FICA would be 3,442, so his total tax, we’re just talking about federal tax and his total tax for federal tax would be 5,442. And that would include the federal income tax. And it would also include his portion of FICA which is social security Medicare tax, 5,442. Now, if that same youth minister is ordain, making the same amount of money, $45,000, and he requested $15,000 for housing allowance. So you take $45,000 minus 15,000 is 30,000, minus 25,000 standard deduction for a married couple. Then that leaves $5,000 taxable income for federal income tax purposes. And the tax on $5,000 is 10%, so it’s $500. But his self-employment tax, he has to pay both halves of social security. Now, if you’ll notice here, the SE tax is not quite doubled his portion of the FICA tax. They do give you a break on the self-employment tax. So they do give you a little bit of a break but it’s basically 15% and so 15.3, after you get a little break on it. So his self-employment tax is $6,358 for a total of $6,858. So in my example, the ordained minister is going to pay about $1,400 more than the non-ordained youth minister making the same amount of money. So don’t do this for tax purposes, do this when it’s all about a call to ministry, not taxes. I will mention also that neither one of these minister situations can they itemize deductions, 95 to 97% of all Americans don’t have enough to itemize. And this young couple certainly does not have enough to itemize deductions. So they will take the standard deduction of $25,100. Now that also makes a difference in that, ministers through the years have taken what we have called a double deduction, when they had housing allowance. And so if they were buying their house, they had property taxes and they had a mortgage interest. And so those two would be what’s called a double deduction because they counted it twice. It was counted one time as housing allowance, those two figures. And then the second time it was counted as an itemized deduction, but these days, most Americans can’t itemize anymore because of how big the standard deduction is. And so this minister situation, either the non-ordained or the ordained, neither one of them would be able to itemize deductions and so they lose out on what was called the double deduction as well. So actually a minister in this kind of scenario would be worse off tax wise, that if he was ordained. Now, if he feels called to be ordained and the church wants to ordain him and so forth and his calling, then of course he would want it to be ordained even though he’s going to be paying more in tax. But I don’t hear this coming as much from the youth minister himself, I hear it coming from the finance committee or the personnel committee or somebody in the church that says, “Hey, we will ordain our minister so that he will have housing allowance, so he’ll have this wonderful tax advantage.” And the tax advantages often more than offset by the increase in social security taxes that he would have to pay. So I just wanted to, I’ve never talked about this before in a group meeting, but I just want to bring it up so that you’ll know, do not ordain for tax reasons, ordain someone when it’s all about calling. So I just wanted to talk about that so that you’ll know. And so let’s talk about, is it taxable and primarily today we’re gonna talk a whole lot about healthcare and how to keep that from being taxable. I’m hearing from lots of people that it’s 15 to $20,000 for their healthcare. And many say it’s even more than that, I’ve heard of a couple who were 64 and so they were not yet Medicare eligible and their healthcare was going to cost them $27,000 per year, that’s just a huge, huge number. So it makes a huge difference these days since healthcare is so expensive, makes a huge difference whether it’s taxable or not. So we’ll talk a good bit about healthcare and reimbursements, but we’ll talk about other things that are taxable or are not taxable and help you to have a good understanding of that today. So I love this quote from Frank Somerville and I’ve used it very often, but I still smile every time that I recite it. “Everything is taxable unless the Internal Service Revenue Code says that it is not.” So if we will have that thought in mind, it’ll help us to understand things in a better way about what’s taxable and what’s not. You and I tend to think nothing is taxable unless the IRS says it’s taxable and I’ve got to pay it. But when we look at it this opposite way, we might have a little bit better understanding. All right, so let’s talk about medical and this is important. so in 2010, gosh, 11 years ago, we had the Affordable Care Act. And it was set to come in in phases and so by 2014, this situation about group health care plans was supposed to be in effect but it didn’t come into being until 2015. And then we’ve had other changes since 2015. So the basic principle is that payment from a group health care plan continues to be a non-taxable benefit provided by your employer. But the payment, our reimbursement of individual insurance is not allowed, that’s what was the situation originally in 2014, 2015, it’s not allowed, but if you do it, that money is taxable income. Now, there are some exceptions and there are some changes since this original healthcare law. So one things that we think about the Affordable Care Act is that it’s been wiped out and there are a number of things that have been changed. And the individual mandate is the big thing that’s been changed, that penalty of $695 per adult is gone, but most provisions of the Affordable Care Act still remain and we need to understand that. So a group health insurance plan is not taxable. It’s a non-taxable benefit provided by your employer. GuideStone insurance is a little different. it is a church plan, so it is non-taxable. It is a group, even if only one person is on it. So you could think of it, they don’t say it this way but you could think of it as the group healthcare plan for Southern Baptist church workers. And so, now when I say church today, churches and associations work essentially the same and they’re treated the same by GuideStone. Church workers and associational workers can be in the insurance, they can be in the retirement plan and it is called the church retirement plan. And so I’ll typically say church, even though I mean both. So GuideStone insurance is not taxable, it is a group plan, even if you’ve only got one person on it. But remember the main point is that a group healthcare plan remains a tax-free benefit provided by your employer, other things generally are not tax-free. Medicare parts B, D and any kind of supplement, things like that, those would normally be an individual plan. And so they are an individual rather than a group plan. And so they would be taxable if your church is paying for it, it is possible for it to be a non-taxable benefit as a part of a group health care plan and that is possible. But you’ve got to have it as a part of a group health plan, so you need a written plan, you need a plan document that outlines that as a part of your group health care plan. And so I put here in yellow, you need to have an expert to help you to develop that, so that you make sure that you’re doing it correctly. So a group health care plan is a non-taxable benefit provided by your employer, what about individual? Payment of individual plan from the church to that individual plan or to reimburse the minister is typically taxable, typically taxable. However, there are some exceptions and there are some new things. First of all, payment for an individual plan with only one full-time employee is not taxable, the IRS notes exceptions and they call it groups fewer than two, a group fewer than two, I like that terminology. So if you only have one full-time employee and in a church that might be the pastor and he’s the only full-time employee, then you could provide an individual coverage type plan. When I say individual coverage, I don’t mean just the pastor, but it could be, it’s individual as opposed to being a group plan. And the IRS notes exceptions, they know that you can’t buy a group insurance for one person. So they allow the employer to pay for that individual plan and count it as a group plan, if there’s only one full-time employee. There’s also an HRA, Health Reimbursement Account. And so there is one that is called a Qualified Small Employer HRA, Qualified Small Employer HRA. And this one came about in 2017 and it is only for the purchase of individual insurance. And it can be between 5,300, if want to, up to 5,300 for an individual or up to 10,700 if you wanna cover family coverage. And you can reimburse anything, so if you want to cover family but you can only do $8,000, that’s fine. You just can’t do more than 10,700. There are numerous rules, we’re gonna talk in a basic way about those rules in just a few minutes. So a Qualified Small Employer HRA is a way that you can provide money as non-taxable. The next thing is reimbursement of an individual plan through the government exchange. The easy answer is it’s probably taxable because it is an individual plan. These HRS might help, but the other thing is, in some cases they’re allowed and some cases not allowed. But if you do it through an HRA, it’s likely taxable but there may be a way to do it that’s not taxable. But either way, whether it’s taxable or not taxable, it is going to affect their subsidy. I don’t know what the number is, it started out about $93,000, a family of four could make and still receive some subsidy on their insurance. And so for a lot of Americans they can have the government plan and still receive a subsidy. But if you had a reimbursement of that in individual insurance plan through the government exchange, it would add to what is counted as income for reckoning the subsidies. So if a person makes more money than they thought they were going to make and they told the government, “I’m gonna make $50,000 a year,” but they made 60,000. Then some of their subsidy is going to be reduced. And if they’ve already gotten advantage of that subsidy, they may have to pay some money back. So that one you will need to talk to an accountant about and talk about your situation. All right, health reimbursement arrangement. If you have a group health care plan, a health reimbursement arrangement is not taxable. And at first, a health reimbursement could only be offered in conjunction with a group plan. So for example, many employers were moving from say, a $400 per year deductible to a $2,000 per year deductible. And they would provide a health reimbursement for perhaps $1,500 or $2,000 to help cover those, the difference in costs that it would cost the employee. And that was a good way to do it because the employer only had to use that money, if the employee needed it. Many people did not need that extra money and so the employer did not have to do it, but they did have it available for employees who did go through their deductible. So originally back in 2015, that could only be offered in conjunction with a group health plan. However, and it could never be a standalone except for these new things, the Qualified Small Employer HRA and a new one that came into being in 2020 was the Individual Coverage HRA. So let’s look at those two just a little bit. The Qualified Small Employer HRA, it has some rules and I’m gonna talk about six rules. Now, it’s more detailed than this but this will give you a basic understanding of HRA. The arrangement is funded solely by the employer. No salary reduction contributions may be made. So our typical way of operating, where we did the package approach, here’s X number of dollars, you divide it up any way you want to. That’s not gonna work in, it’s has to be employer contributions to this plan. No salary reduction is allowed. Second, the arrangement provides after the employee provides proof of coverage for the payment to be reimbursed and eligible employed for medical care expenses incurred by the employee or family members. So you must provide proof of how much it costs you for that individual coverage. Third, the amount of payments cannot exceed $5,300 for individual or 10,700 for family. And so that’s your maximum, you can pay a reimbursement less than that but not more than that. Rule number four, the arrangements provided on the same terms to all eligible employees of the employer. So for everybody who works 30 hours a week or more, you would need to provide this. You can’t just provide it for the pastor alone. You would have to provide it for anybody who worked 30 hours a week or more. Now for some of you, maybe your ministers are the only ones who worked 30 hours a week or more and your other employees work less than that and you would be fine, but you’ve got to treat everybody alike who works 30 hours per week are more. Number five to be an eligible employer, the employer cannot be a large employer. Well, that’s kind of obvious, because the title of this is qualified small employer. People who are large employers have more than 50 employees and they must provide insurance, they don’t have a choice. And also you cannot offer a group health care plan to any of your employees. So if you provided a group health care plan to your pastor but you didn’t to anybody else and you wanna provide this HRA to the other employees, that would not work. And then number six, you’ve got to have a written plan and you’re supposed to notify your employees 90 days in advance. So that’s the Qualified Small Employer HRA, it is for providing individual reimbursement for individual health insurance and it would be a non-taxable benefit. The next one that we wanna talk about is new, it’s new for 2020. A lot of people have not heard of this one yet, is called an Individual Coverage HRA, I-C-H-R-A. Individual Coverage HRA has more flexibility than the other one. It may cover individual insurance premiums and out-of-pocket costs, QSEHRA, the way they said it at GuideStone, The QSEHRA is only for insurance premiums but this one can do both. It may offer different classes, different things for different classes of people, such as salary versus hourly, full-time versus part-time and so forth. You can do different classes of people in the QSEHRA, your main consideration is those who work more than 30 hours a week or more. It is generally tax-free to pay for, except to pay for things like Christian sharing ministry plan. And the Christian sharing ministry plan can be a good option for some of our ministers and church employees, can be a good option, you do need to know how it works. It’s gonna have a very low premium but it’s only going to cover expenses typically over about 300 or $350. It’s not going to cover your, say, basic going to the doctor because that’s gonna, just a doctor’s visit is probably gonna be less than that. It’s not gonna cover some of your things that are less expensive. It’s also not gonna cover any of your routine drug costs that you have, things that you have for maintenance drugs. And so you need to know the rules about that. And so those who understand how it works and understand what the rules are, many of them are very satisfied with the Christian sharing ministry type plan. Some who are not satisfied are some who didn’t really know how it works before they got into it but this kind of HRA can be done, but it would be taxable if you were paying for a Christian Sherri ministry plan. Now here’s the difference between the QSEHRA, Qualified Small Employer HRA versus the Individual Coverage HRA, the QSEHRA is for fewer than 50 full-time employees, the ICHRA is for any business of any size. Can be offered with a group plan, the QSEHRA, no, the ICHRA, yes. Is there a maximum contribution? And we’ve already talked about that for the QSEHRA, 5,300 for single and 10,700 per family, the other is not kept. Can amounts vary per employee and you can vary in the QSEHRA only by family status, age and family size, but not based on classes, the ICHRA can adjust the allowance according to different employee classes. Who’s eligible? The first, all full-time employees. And you may include part-time but it must be on the same terms if you wish to include part-time. And the ICHRA must be offered on the same terms to employ in each class, although you can differ by classes. Does it work with the premium tax credits? Now, what this is talking about, is a person who is on the government insurance plan, what’s often called Obamacare. Does it work with those premium tax credits? On the QSEHRA, you can still receive premium tax credits but the HRA amount is reduced. And on the ICHHRA, employees participating in the, I think they’re excluded from the premium tax credits, I believe, let’s see, are eligible for the premium tax credits. Does it work with the premium tax credits? One you can still receive it, the other, you cannot. Requires the individual health insurance, the QSEHRA? Yes, the ICHRA does not, actually what that stands for, it does not require Minimum Essential Coverage, Minimum Essential Coverage and those initials are MEC. Minimum Essential Coverage is what the health care law, the Affordable Care Act, originally required. And these days they allowed you to purchase health insurance that doesn’t meet those things, it’s called a temporary insurance plan that has limitations to it. There are certain things that does it cover, it might not cover pre-existing conditions. It might have limits, severe limits possibly on the amount of coverage it offers and those are called temporary plans, but some of those temporary plans can kind of go on and on. But if you are looking at a health insurance plan that is really cheap, ask if it provides Minimum Essential Coverage. Because if it doesn’t provide Minimum Essential Coverage, you need to know that, you need to know what could happen if you should have some major medical event. So the QSEHRA can be used for individual health insurance and the ICCHRA can be health insurance and other medical expenses. So those are the differences, essential differences between those two HRA’s. The QSEHRA came about in 2017, the ICHRA came about in 2020. These might provide some ways that you as a church, you’re thinking we can’t afford health insurance for our employees and we are less than 50, so we’re not required to provide health insurance. And you might be thinking we just can’t afford it, so it might be possible to have a reimbursement that might be tax-free that you could do for your employees. Now, you notice that these need a written plan. So you’re gonna need an expert to provide for you a written document that outlines your plan and that you’re following a plan as it is correctly written. So you’re gonna need an expert. But I think it’s well worth it, when you think about as I started today on health insurance and I said that health insurance might be 15,000, it might be 18, 20,000 and even that one example that I heard of that was 27,000. Is so expensive that it would cost you a little bit to get a properly written document, but it would be worth it to provide this kind of benefit for your employee. So that’s an overview of the QSEHRA and the ICHRA, which are relatively new, QSEHRA in 2017, the ICHRA started in 2020. So we want to talk some about, is it taxable? And we’re gonna go through this section. Some sessions we’ll go through fairly quickly, some sections we’ll kind of take our time on. So obviously, salary is taxable income, that’s obvious. This table is contained within the financial issues book 2021, this was on page 17 of that book. You have it here in your notes which you can get from alsbom.org/ccs, but it’s also in the book, “Financial Issues,” you can get that at the same website. So is it taxable? Salary obviously, yes. We need to know that love offerings and bonus are always taxable. I’ll often get that phone call, that’ll be a phone call and say, “Is there any way that we can make that love offering tax-free,” and there really is not, I get that phone call pretty often. Severance pay is taxable as well, taxable in the same way. Social security offset, that is taxable money. Now, what social security offset means is that it is a recognition that the pastor or other minister that is ordained. They have a dual tax status, they’re an employee for federal purposes but they’re self-employed for social security purposes. And so many churches will say to their pastor or other ministers, “You really are our employee and for all other employees, we’ve got to pay half of their social security taxes, but on you, we can’t do that, we can’t pay FICA own you. So therefore, we’re gonna give that equivalent amount of money to you and it’ll help you with your taxes.” Well, that money does help, but it’s tremendous help, but it is taxable money and is included in box one the W-2. Gift cards, gift cards are also taxable money, when given by the church to the employee. The IRS has a statement that they say, “Cash and cash equivalents are always adequately accounted for and accounted for concerning taxable income.” And so a gift card would be a cash equivalent. So what that means is that you can give a employee, you can give them a small tangible gift and that would not be taxable money. So say, you give the secretaries a dozen roses, let’s say that you provide the pianist a dozen roses or two dozen roses on the can. I’m assuming that the pianist is paid and so you can only give something that’s tangible and of lesser value. Now, some of the examples that the IRS has for those things are like a ham or turkey at holiday time. It could be theater tickets. Now, I think they mean by that, I don’t think they mean Broadway, I think they mean by that, going to the local community theater or something of that nature. And things of that nature that you can give an employee as a gift that is not taxable but it’s tangible, it’s not money and it has a fairly low value. Gift cards are taxable. Payment of personal expenses, that is taxable money. So I know of some churches who pay for the pastor’s car insurance, that amount would be taxable. I know some churches who pay for the pastors whole life insurance policy, that would be taxable. Now a church who has a dynamic, very, very dynamic pastor, some of those churches have bought key man insurance. And let’s say that we have a pastor that is noted throughout the Southern Baptist convention or noted throughout the country. And we might obtain key man insurance, because we know that if this pastor, something happens to this pastor, we know that our church will suffer financially for a while until can get organized and back on our feet again. So key man insurance would not be taxable because the beneficiary is not the pastor’s family, beneficiary is the church, but payment of whole life insurance, that would be taxable, that’s not the one the IRS allows. Forgiveness of debt is taxable income, there’ve been churches who’ve given a minister of week, We’re gonna give you $5,000 to help you with the down payment of your house. And then they forgive that debt, well, that forgiveness of debt is taxable income. And then the imputed interest of a below market loan, sometimes a churches loan someone, say over $10,000 to get into their first house and then the person pays that back. Well, if it’s zero interest, if it’s zero interest, they were supposed to pay the interest. And so the IRS charges a tax on the interest they should have been paying, so imputed interest of a below market loan. Club dues are taxable, club dues are taxable, this will be like a membership at the , or a membership at the country club or whatever, things like that. But professional organization dues would not be taxable. For example, I’m a professional parliamentarian and if the church paid for my dues to be part of the NAP, National Association of Parliamentarians, that would not be taxable money. Pastor discretionary fund is taxable, unless and this is over here in the comments, unless it is a completely accountable. So the pastor helps out an , a need and turns in a report showing what the need was and how much he gave and so forth and he accounted for every penny, church expanse that comes up that nobody’s around to sign a check and he turns into receipts and accounts for what that church need was. Those would be accountable for those, a way to account for those expenses. But if it’s just given to him and there’s no accountability for that money, it’s just taxable. The housing allowance for an ordained minister or a possibly a licensed minister, but definitely for an ordained minister, is it taxable? No, it’s not taxable for federal income tax and state income tax, but it is taxable for social security taxes. And so I said that over in the comments that it is taxable for self-employment. And is there a written plan? Yes, the church must approve that housing allowance before it’s paid, not after, but before it’s paid. And that needs to be noted somewhere in writing, it could be in minutes of a church business meeting, it could be written in the budget, it could be done by committee like the finance committee or personnel committee, somebody like that, that they approved the housing allowance and that’s documented in that committee minutes. Let’s talk about reimbursements, we’ve talked about taxable income, be careful about that, I know some churches that really struggle with, is there any way we can make this love offering tax-free? And so don’t be one that tries to figure out some way to skim that one, it is taxable. So let’s talk about reimbursements. First of all, not accountable car allowance, you just give the pastor, here’s $5,000 a year, use it for your car expenses, well that’s just taxable money. Reimbursements of business expense that come out of salary reduction, that is just simply taxable money. You do reimburse, you do reimburse based on maybe even a report, but at the beginning of the year, you said to the minister, “You divided up any way you want to.” And the minister said, “I’d like $5,000 as a business expense,” and he took it out of his salary, it cannot be from salary reduction. And the IRS has said that and emphasize that in recent years, so it cannot be from salary deduction. And if it is from salary deduction, that is just taxable money. So in other words, it’s not his money, it is a budget line item in the church budget, it is church money and it cannot be salary reduced. Accountable reimbursement plan that’s done properly. And we’re gonna talk just a little bit about that as we talk about the compensation planning guide in a few minutes, but an accountable reimbursement plan is not taxable. You don’t put it on the W-2 anywhere, it is not taxable. Is there a written plan required? No, but it would be recommended because, what’s required is that you just do the procedures correctly. But I would recommend to you that you have a written plan, that way everybody knows what we’re doing, how you’re reimbursed, for what reasons are you reimbursed and what the rules are, the basic IRS rules, so that you have a written plan about that. The other reason that I think a written plan is such a good idea on this one is that, as we change personnel committees and as we change finance committees through the years, you could have a finance or personnel committee that doesn’t know what previous committee did. So you could set up a proper accountable reimbursement plan at one time and you go along for a few years that way. And then later on down the road you’ve got a whole new committee, they don’t know what was done in the past. And they go right back to the package approach that we’ve tried to get churches to not abide by the package approach and not do this thing of, here’s your money divided up anyway you want to. So a written plan would help you to not fall back into that old package approach. All right, reimbursement, what about spouse travel? That one is taxable unless the spouse has a business reason to go. Now, these days we’re not traveling very much but when we get back to traveling, let’s say that a spouse goes to the Alabama convention and State convention and the spouse goes and the spouse is elected messenger and goes and votes and participates. Well, then that’s a business reason to go and the church could reimburse for that tax free. But let’s say that the spouse goes but the spouse is not an elected messenger and does not participate in the meetings and just goes and has a good time, checks out all the stores, let’s say it’s the other way around and it’s a female staff member and the spouse is a male and he goes out to do whatever he wants to do. Well, then that would not be a business reason to go. And so therefore the reimbursement of spouse travel would be taxable in that case. All right, cell phone. You may reimburse your, anybody that you want to and that is tax-free, to reimburse for cell phone. Now you could reimburse your ministers, you could reimburse, let’s say you have an administrator, you can reimburse him, ’cause he might go to store to buy stuff or supplies for the custodians or whatever. And you could call him and say, “Hey, we forgot to put on the list this.” You could put your secretary on that, reimburse for their cell phone, if there was a business reason for them to have a cell phone and it would be noted that it would be primarily for business use. So you could do that for anybody, the church deans would need it for business use and that’s got to be the understanding. You don’t have to track minutes, you don’t have to track anything, but just the one thing the church bus track is, get periodically, get the cell phone bill, a copy of the cell phone bill. All you need is just the front page showing the amount the employees paying for that cell phone. That way you are sure that the employee still has a cell phone and how much that they’re paying. ‘Cause if they go from, let’s say you’re reimbursing $50 a month and they have a $50 a month plan. But then there’s a lot of these new plans that are $35 a month, $30 a month, maybe even $25 a month. And so if they go on that kind of plan, you can only reimburse what they’re actually paying for their cell phone. So you want to get a bill, a copy of the bill to show that. So these things are reimbursements and you need to do these correctly for them to be tax free, excuse me. All right, so unreimbursed business expenses. We need to know this, I find that there’s still some ministers who don’t understand this, that I as a minister, I am both an employee and self-employed. I’ve been employed for federal purposes, I am self-employed for social security purposes. A lot of ministers think that they’re really truly self-employed and they’re really truly not. They’re primarily an employee but their social security, they’re self-employed. So under schedule A, itemized deductions, there used to be a line called employee unreimbursed business expense. So if I was not reimbursed at all by my church, I could put those amounts there, those business expenses that I did not have reimbursed there on that line and I could deduct it. If I was not reimbursed enough, let’s say that I had $5,000 worth of expenses, but the church only had in their budget to reimburse me 3000. Then I could put the remainder of that in that line employee unreimbursed business expense and I can deduct it on my income tax. But that line is gone, it is gone. You cannot deduct, as an employee, you cannot deduct anything. So a minister serving a church can no longer write off business expenses related to his church. Now, many ministers don’t have an accountable reimbursement plan for their business expenses. And many don’t want it, they just think it’s too much trouble, but these days, if you cannot deduct it, if you don’t have an accountable reimbursement plan from the church, you’re just out of luck. Now, I will say that many ministers do have some self-employment income. Maybe they do speaking engagements at another church. Maybe they do revivals at another church. Maybe they get paid when they perform weddings or funerals, that would be a business activity. And you could deduct the expenses related to that business activity, but not that activity having to do with your church. So the amount of unreimbursed employee business expenses that a pastor will be able to write off relating to his church will be zero. Wow, zero, so we all need to know that. I think I saw a question, let me see if I can find that. Well, it’s not low bar. I’m gonna go on a little bit further and then I will stop this. It’s not, here. Here, here we go, Q and A. All right, let’s look at this one, from Greg Miller, you can write off unreimbursed expenses for Alabama. Thank you, thank you for mentioning that. It’s funny how Alabama tries to imitate federal rules, in many cases to, but then when federal changes something, Alabama might not change it and you never know. So thank you for that, I appreciate that. But for federal purposes, you could no longer run off employee unreimbursed business expenses. All right, let’s move on. Oops. Tuition and continuing education. Now, this is something that a lot of churches don’t know at all and most churches don’t provide these things but I just wanna mention them, you might want to. Your church might be interested in providing some of this. And the reason that I put this in the chart is, often I may ask, “We have a youth minister and we want to pay for that youth minister to go to school. Can we pay for that youth minister to go to school tax free?” And the answer is possibly, possibly, but maybe not. So here’s some of the rules about tuition. So a church or any business could have a tuition assistance plan and that’s a written plan and you provide equally to all your employees that’s equally available. Then if they wanna go to school that you can reimburse them for that education expense. I think the last I remember the amount was limited to, I think about 5,200 per year. I don’t know if that number has changed this year but somewhere in that ballpark. And the tuition assistance plan that’d be a great benefit but it must be offered to anybody who wanted to take advantage of it, say for all your full-time employees. Tuition assistance for one employee for a bachelor’s degree, that is taxable. Now, even if it’s taxable, I think the church, if the church wants to help that employee to go to school, I think that’s a wonderful thing to do, but it would be taxable. And so it still be worth it to that employee to get the money, even though it is taxable. All right, continuing education reimbursed as a business expense. No, it’s not taxable. So this would be like I need to take a class on accounting or something or I needed to take a class on psychology to help my skills or I need to take this Bible class and it’s all about skills having to do with the church. And so you would could reimburse for that particular continuing education. Now, you could reimburse for a class that is required by, what the church needs and that reimbursement be done and could be tax-free. Now, here’s why that’s different, graduate level education as an accountable reimbursement of business expense. So, let’s say that I’m a minister and I’m wanting to go to seminary and I’m wanting to do my master’s degree, for example, that one would not be taxable, done in that way. And here’s the difference between the bachelor’s degree and the graduate level degree. The IRS, except for the tuition assistance plan, which would be available for anybody on any kind of degree plan that anybody wanted to do, except for that one, the IRS doesn’t want you to reimburse education if it helps prepare that person for a different job. And so tuition to start on your bachelor’s degree, the way the IRS would look at it is that prepares you for a different occupation, because they would prepare you for most any occupation. However, on the graduate level of education like seminary, that one is continuing the education for your occupation that you occupy right now. And it would not prepare you for a different occupation. So for example, we can’t send our pastor to school to get a graduate level degree in physics, for example, because that would prepare him for a different occupation. But graduate level such as seminary, yes, we could do that, that would be tax-free through the reimbursement of business expense. Moving expense, this has changed and we all need to note it. Moving expenses are no longer tax deductible and moving expenses paid by the employer are taxable income and it’s reported on the W-2 and so it would be reported on the W-2 in box one. If you should happen to move someone who’s not a minister, then it would be reported in box one, three, and five, well, and for both the minister and the non-minister it would be reported under Alabama income as well. Well, I need to check on that, double-check on that, about moving expenses in Alabama income. I’ll double check on that and if y’all will send me an email, if you had anticipate that may be happening for you, I’ll check on that in Alabama. But for federal law, moving expenses paid by the church are taxable income reported on the W-2. The only exception is the military. They get moved around a lot and for them, their move and being in the military is tax-free. All right, let’s look at some other benefits, group health insurance, either group health insurance are a group fewer than two, is it taxable? No, and you don’t have to have a written plan, but I would recommend that you have a written statement in your policies so that you’re avoiding the old package arrangement thought. It’s gotta be an employer benefit not part of the package approach. Health reimbursements, if there done correctly they’re not taxable and you do need a written plan and it’s generally got to be available to all employees working 30 hours. That new one, the ICHRA can vary by classification of employees, but the QSEHRA you would have to provide it for all employees who are 30 hours a week or more. Reimbursed individual insurance, yes, that is typically taxable money except when you have the QSEHRA, for example. And you got to do it right, you’ve got to have a written plan, you’ve got to do it properly in order for it to be tax-free. Group term life insurance, that is not taxable, but it is limited. So group term life insurance can be up to $50,000 worth of coverage, tax-free, beyond 50,000 of coverage, there is a taxable amount and there’s an IRS table to help you to calculate the taxable amount. It’s not extreme tax, so if you can provide two times their income or more or if you can provide a flat amount, like 100,000 in coverage, it’s not gonna be that much in tax, so a group term life insurance. Now, notice that is group term life insurance, is not whole life. So you want to get the right kind of insurance. I will mention to you that GuideStone term life insurance is group term life insurance and so that’ll make it easy. Disability insurance, that’s a tax-free benefit as an employer benefit. Now there’s a argument out there about, get your disability insurance yourself and you’ll be paying for it with taxed dollars and then that way, if you ever became disabled, then the money would be coming from the disability insurance coverage to you tax-free because you paid the taxes first. Now I think, now if you make a million dollars a year, maybe that might be a good idea. But I think for the vast majority of workers, I don’t think that’s a good idea. Because first of all, most people aren’t going to become disabled. Now, disability insurance is the most neglected insurance of all. And as long as we’re working, we need disability insurance. Don’t get me wrong there, but most of us are not going to need disability insurance, so why pay taxes on something that you might not need? And then the second thing is, most people who are on disability don’t make very much money. Your typical disability insurance will cover about 60% of your income. You might also be able to qualify for social security disability and maybe make up some of the difference in your income, but still a lot of people on disability don’t make a whole lot of money, so therefore they’re probably not gonna pay taxes or if they do pay taxes, they’re gonna pay not very much in taxes. So I think it’s better for it to be an employer benefit. You would be taxed on it if you did receive it, but you’re probably not going to care that much, ’cause you probably won’t be paying much in taxes. Dental and vision insurance, those are a tax-free benefit as well when provided by the employer. Retirement, now the employer contributions to a retirement plan, they’re not taxable. They are limited, the total amount going into your retirement plan, can’t exceed 58,000 or how much taxable income you have, whichever of those two numbers is less. So I think we’re gonna be all right on that, but so essentially, the essential answer is, is it taxable? No, ’cause most of us don’t have $58,000 a year going into our tax, into our retirement account. Employee contributions to the retirement plan, they are not taxed, but they’re limited, the limit this year is 19,500, total limit for those over age 50 is 26,000 or your taxable income, whichever that is less. Now of course a Roth would be taxable, the idea of the Roth retirement plan is that you pay the taxes up front to not pay the taxes on the growth or on when it’s just distributed to you. So the Roth that is taxable and so some of you, especially those of you who are younger, you may want to have some of your money in a Roth that you won’t be taxed on it when you do retire. Those of you who are ministers, I’ll just say this real quick. Those of you who are ministers, you would not want to do all your money as a Roth. Because if you are an ordained minister, you can put money in and not pay any taxes, save on your taxes now as you put it in, putting it in the traditional way, it will grow tax deferred. And then when you do retire someday, you can take a portion out, up to 100% of it out for housing allowance, whatever is appropriate for you as housing allowance, you would be able to take that out tax free, the housing allowance portion, so that’s better than a Roth. And so for a Don minister employed in the church, the Roth is a wonderful idea, especially if you’re younger, but if you are a minister, you might want to split it but you definitely don’t want to do 100% as Roth and any of you ministers out there, if you would like to talk more about that, I can’t give you, unless you’d know exactly what you’re gonna need in retirement for housing, I can’t give you a number. And exactly how long you’re going to live, I can’t give you a number, but I can just give you an idea that it doesn’t need to be 100% Roth, maybe I might wanna split it. All right, an individual retirement, yes, that is taxable money because then the employee’s going to write it off on their taxes and they will be able to deduct it for federal income tax purposes. If it is traditional Roth, it would be deductible. However, it’s not going to help you on your social security taxes. So what you really wanna do, if you are an ordained minister, you really, really want to have the church retirement plan through GuideStone, you’ll save taxes going in, you can save taxes coming out as it can be used for housing allowance. And it’s just, they do a wonderful job with our money. I’ve heard some of the financial reporters talk to a minister and say, “You need to get a Roth IRA.” And I just cringe when they say that because that’s not the first thing you should do. You should begin with your denominational provider and GuideStone is our denominational provider. These are called church plans, they have some special rules that have some good advantages. So if any of y’all would like to talk to me about that, just call me, but this is the way retirement works. Other benefits, now, these are pretty rare but you might wanna think it. So dependent care assistance, is that taxable? No, it’s not taxable, but it is limited in dollars, there’s a limit on it. And you do have to have a written plan, it’s gotta be equally available to all employees, so that would be a wonderful benefit. I’ve noticed some churches who had all young employees, young ministers, young support staff and everybody was young and had smaller children. And so that was a wonderful benefit for that church to provide. Adoption assistance, you can provide adoption assistance for those who wish to adopt. And it’s a certain dollar limited to a certain dollar amount, does require a written plan, must be equally available to all employees. And I knew a church that was very concerned about adoption and they did provide that for their employees, that was a good idea. Tuition reduction at a church school, it is not taxable. However, it’s only available to church school employees. So let’s say for example, the pastor is the headmaster of the school, I’ll use that term. And he is responsible for doing chapel and he’s responsible for the school and he’s responsible when their spiritual needs, maybe a family is having trouble and they are difficult life situation and they need the pastor to come and he comes to that school, a participant and helps them spiritually and things like that, then he would be a part of the school. But let’s say the youth minister has nothing to do with a school. And he gets that tuition redemption, then that tuition reduction would be taxable to him. But in my example, not taxable to the pastor, so that’s another one that might be available. Now, one thing that you and I need to understand especially in this world that we have in church world, where so many churches say to their employees and to, especially their pastor, they say, “Here’s X number of dollars, you divide it up any way you want to.” And we think we’re doing a big favor, but we’re really not. If an employee can elect to receive cash or benefits that it’s taxable either way, this is called cash in lieu of benefits. And the lump sum or package approach exactly does this, you divide it up any way you want to. And so if it is that way, it’s gonna be taxable, whether I take the cash or whether I take the benefit. And so a benefit needs to be something that is provided by the employer to the employee and this applies to any benefit. And also, so like for example, your pastor sets aside $10,000 for health insurance and that’s just provide, it’s out of his lump sum. And he can say, ” I don’t like this health insurance. I’m gonna go to something else, so give me the money.” And he gets the money, then it was taxable either way, the health insurance or the benefit, I mean, or the money. So it applies to any benefit. And then also this is a separate item but reimbursement of business expenses from salary deduction is not an accountable plan and therefore it would be taxable as well. So therefore, a church needs a written policy about the benefits provided and about the accountable reimbursement plan for business expenses. And if the church operates under the package approach, the only thing a minister can truly do, if you’re truly under the package approach, the only thing that ministry can do, is request a housing allowance and do a salary reduction agreement for the church retirement plan, everything else is taxable. So be careful of that, be careful that concept of cash in lieu of benefits. So we’re gonna do a pastor’s W-2, some of you may not have been with us yesterday or maybe we need to just go over it again. We’re not gonna go over other W-2’s, but just this one, this pastor Jones is pastor of this church in Alabama, has a salary of 25,000 of which he has requested 15,000 in housing allowance and signed a $2,000 salary reduction agreement for the church retirement plan. In addition to that, the church provides health insurance as a benefit for him and $1,000 contribution into his retirement plan. And the church also provides 60,000 in life insurance and that is more than the 50,000, so there is a taxable amount. And so looking at the table in publication 15-B, the taxable amount of this $10,000 is more is $12. And so note that the IRS only allows group term life insurance. Now, it has a 10 employee rule and a lot of us as churches don’t have 10 employees, but there’s other ways to get around the 10 employee rule. The easy answer is GuideStone, because theirs does qualify as this type of plan even if the employer has fewer employees than 10. So here’s what W-2 looks like, we had $25,000 minus 15,000 for housing allowance, that leaves 10, that he wanted $2,000 to go into his retirement plan. And I’ll just slide the mouse and pointed over here, $2,000. So that leaves $8,000, which is taxable income. Now, in addition, that’s code letter E, here on box 12, which is the code letter for our 4-3-B, that’s what the church retirement plan is. If you had some other kind of plan, it might be a different code letter. Then group term life insurance, the taxable amount is $12 that is listed here in box 12 and it’s also included up here in box one. It’s also included down here in box 16 as we look at that box for Alabama wages. And so then, this particular minister did not have taxes withheld. And so this box is blank, but on a minister note that box is three, four, five and six of an ordained minister are always blank. Now, today we’re talking about a minister serving a church, that’s totally what we’re talking about. Now, there’s some other types of ministers who serve as a chaplain for some other organization that might have social security FICA withheld, but we’re talking about a minister serving a church versus three, four, five and six are always blank. Just for fun, I did put the health insurance down here, is called DD and the amount was $5,000. That’s just information, it doesn’t change his taxes one way or the other. Although it was a benefit that was tax-free and that was nice in this example. But you’re only required to do that, if you’ve got 250 or more employees and no church in Alabama that I’m aware of has that many employees, so you don’t, this is optional. Most will not do it, because it’s just optional and they won’t do it. So the other thing is that the minister housing allowance is not required on the W-2, but if you want to put it on the W-2, it would go in box 14, which I’ve covered up a little bit down here. And if you wanted to put it on the W-2, it would say, “Housing allowance $15,000,” in this case. We have recommended through the years not to put it on the W-2, you just want a simple W-2, you don’t want to confuse anything. But if you want to and many of the church software these days does put it on box 14. A couple of the software plans, church software plans allow you the option, you can put it on the W-2 or not put it on the W-2. If you don’t put it on the W-2, you should report it in a memo form, for 2020, you received 15,000, in addition to what’s listed on your W-2, you received $15,000 in housing allowance. But this is what a minister’s housing allowance should look like and if you do this wrong, you’re gonna have to redo your W-2. So for example, you include the 15,000, appear in box one, housing allowance appears in box one making that 23,000 right there, then the minister can’t deduct that on his taxes. It is excluded from income, there’s a difference between those two statements. It is not deducted, it is excluded from income. And if you listed as income, the pastor’s gonna just have to ask you for a corrected W-2. So this is what a ministers W-2 looks like. And I hope that that helps you to kinda see how that works for an ordained ministry. All right, before we go into the compensation planning guide, let me see if there’s any other questions. Are any benefits non-taxable for self-employment taxes? Yes, if you provide a group health care plan, then that’s not included as income for federal. And it’s also a benefit that is not taxed for self-employed purposes. If you provide vision or dental coverage, those are not taxable for federal income tax or for self-employment tax. If you provided your coverage in retirement plan, the part the church provides is not taxable for self-employment. And it’s weird for us as ministers to be treated this way that we are employees for federal purposes and self-employed personal security purposes. Let’s try and think of any others that, typical benefits are not taxable for self-employment taxes. Let’s try and think if there’s any other things, of course your, if you do the car according to countable plan and do that properly, that doesn’t show up anywhere as income at all. And that would be, this is a great question, great question to think about. Now for FICA, which is social security Medicare, if you have a regular employee, like for example a church secretary and you provide retirement, say $1,000, that’s not taxable at all, not taxable for federal, not taxable for state, it’s not taxable for stuff, well for FICA. If you have the employee and they do a salary reduction for their retirement contribution, this one works a little bit different, if they’re a regular employee, then they would be saving on their federal income tax. They would save on their state income tax but FICA would be paid on their contribution into their retirement plan, for somebody who’s not a ministry. So that’s a really good question. All right, I’ll close that out and we’ll move on, but I’ll try to watch for the Q and A and we’ll stop and try to answer any question you may have. Now, this is the compensation planning guide, it’s available at guidestone.org. You’ll see it down here at the bottom, guidestone.org/compensationplanning. And anybody can get that online, it’s always available there. We do have copies in our office, if you should need, say five copies for a committee meeting or something like that, we can provide those for you. This is the best piece that GuideStone puts out, the most important piece that GuideStone puts out and a basis for how we do compensation in a proper way for church employees. And this one talks a lot about the ministers, not just, click that and, hit the wrong button, there we go. Why it’s important and honors God’s word, the scripture says, “You shall not muzzle the ox while it’s treads out the grain and the laborer is worthy of his wages.” And then in Corinthians, “Even so the Lord commanded that those who preach the gospel should live from the gospel.” Now, we know that Paul did not take any money from the church, he was a tent maker and he made it on his own, that was his desire, but the Lord has commanded to take care of those who live from the gospel. So it’s important that it follows biblical principles. Second, it ensures a proper structure, proper spending, clarifies personal income, because the way we talk about this package approach, here’s your money divided up any way you want to, is different from the way that secular employees are taught to about their income by their employer. So it extends the employee tenure, it protects the minister and the church. Now, how does this protect the church? Well, if we say, let’s just take this example. If we say that you can divide it up any way you want to, minister says, “Hey, I don’t need those benefits. I need the money, I really need the money.” And then what if that minister has a, he has a heart attack and he’s got a $100,000 bill from the hospital. What are we going to do? We’re in trouble and he’s in trouble financially. But that’s going to reflect badly on the church, but even worse than that, what if he becomes disabled and he doesn’t have any disability insurance? Well, we’re here to probably try to provide for him. And I’ve known many churches that provided for that minister for maybe a year, maybe longer, until they could figure out how they’re gonna live. What if he dies and doesn’t have any life insurance? What are we going to do? Well, we’re not just gonna kick his family out on the street. We’re going to try to provide for them for a while until they can figure out how they’re going to live. And providing those things after it happens would be very, very costly and providing the insurance can be pretty cheap. Now, of course, health insurance is expensive but the other two, term life insurance and disability insurance are pretty inexpensive. So benefits compensation plan is a wonderful thing to do and it reduces confusion. It assures that funds are spent appropriately and it lets the staff know that you value them. Now there’s dangers of the lump sum or package approach. And that package approach says to the minister, “Here’s X number of dollars, you divide that any way you want to.” And I’ll go to the second one because I touched on that just a moment ago. It may lead to a financial hardship for the church, like for example, that minister who died while serving the church and didn’t have any life insurance or that minister who became disabled and didn’t have any disability insurance. So to provide these benefits, is actually beneficial for the church as well. I’ll go back to the first one, first bullet, it causes the ministers to pay higher taxes, so that lump sum and they take it all as cash. They still need medical insurance, they still need to provide for their retirement and other things. And so if they don’t do those things, causes them to pay higher taxes than they need to. It distorts the ministers amount of actual income. We talk about it differently than we talk about salaries in the secular world. So there’s dangers and another danger I talked about earlier, the danger of cash in lieu benefits. If the employee is allowed to take cash instead of the benefits, then it’s taxable either way. And so everything would be taxable except the minister could request house allowance and the minister could make contributions to the church retirement plan, those two items would save him on taxes. So next we need to understand, who is a minister for tax purposes? And I’ll just say, I was talking to someone about this earlier this morning. A minister for income tax purposes is one who is ordained, licensed or commission, administers the ordinances, conducts worship and has management responsibilities in the church and is a religious leader for your church, that is the IRS definition. Now, we’ll mention that the Department of Labor definition of who is a minister and has the minister exception, is one who has a ministerial job description. For the Department of Labor, you don’t have to be ordained. For example, let’s say that you have a youth minister who’s not ordained. And so if he’s not ordained, he’s not a minister for IRS purposes and he wouldn’t be receiving a housing allowance. And if he’s not ordained but he has a ministerial job description, that he would be a minister for the purpose of the Department of Labor. And so he would be an exempt employee and so therefore he could take the kids to camp and works, double the hours that week and you don’t have to pay him any overtime because he’s an exempt employee. And also ministers, they’re the only ones who were like this, but ministers don’t have to meet that special rule of making 35,000 something dollars in order to be continued to be exempt. They are an exempt employee even if they make less than that, they administer with a ministerial job description. So here is a minister for tax purposes meets these qualifications. Now, what does that mean? What difference does it make? They have a dual tax status. Now, we’re talking about a minister serving a church. We’re not talking about an evangelists, we’re not talking about a chaplain, we’re talking about a minister serving a church as a dual tax status. They’re an employee for income tax purposes, they’re self-employed for social security purposes. And so what does that mean? They’re exempt from withholding. Now notice that it says withholding, does it say exempt from taxes, but they’re exempt from tax withholding. They can ask you to withhold federal income tax or they can do their own quarterly tax estimates. They are eligible for a church designated housing allowance but also at the same time, they must pay their own self-employment tax and that is their social security coverage, self-employment tax. So they have this unique dual tax status. So step one and it’s in the guide. Step one is just a worksheet. What do we need to think of, what have we needed in the past for our ministers? And we think through on a worksheet. Step two, is we should establish written policies and this should be ministry related expenses. We want to make sure that we’re doing an accountable plan. We want to think about employee benefits and define what benefits do we as a church provide, how we do personal income and how we give raises and things like that. And then other personnel policies, like vacation and sick time and sabbatical and other kinds of personnel policies. Step three, is we need to provide for ministry related expenses. So, and this is on page seven of the booklet as you get it online, you need to have an accountable plan. And this would cover vehicle use for business purposes, meetings and workshops and conferences, books and periodical software for church purpose, continuing education opportunities and provision for ministry related hospitality. Now, what that means is that your pastor could take a prospective family to lunch, answer their questions, tell them all about the church, find out about where they are spiritually and could turn in that receipt for the lunch and get reimbursed because it was a business related hospitality. The requirements, these are IRS requirements. The expenses must have a business purpose, you need to document, the amount, date, place and purpose of each of those things. And expenses must be substantiated and report needs to be turned in at least every 60 days. Most we’ll do it monthly, but at least every 60 days and any excess, you can get an advance say, you’re going to convention it’s gonna cost a good bit. You can get an advance but any excess must be turned in within 120 days. You can use the IRS standard rate and that rate for this year is 56 cents per mile. But unused accountable reimbursement money should not be given as a bonus. And like we said earlier, it cannot be from salary reduction. Those two things, giving it reminders or bonus or doing it from salary reduction would cause it to be a non-accountable plan. And then if it’s not accountable, it’s all taxed. So you cannot do it from salary reduction and then it’s a non-accountable plan. And the IRS audit technique guide for agents, for IRS agents, ask them to inquire about business expenses and was it done from salary deduction? They know how we typically operate. So if the minister is audited, that IRS agent is going to ask about their business expenses. And if they’re doing it from salary reduction, it’s going to result in additional taxes and penalties. Trying to write off the expenses on the tax form as we’ve emphasized several times a day, is not going to work, except for like Alabama tax but not for federal income tax. The next step, step four is to provide for benefits. And so a benefit plan has strong tax advantages, it offers the insurance coverage the person needs anyway and it should include retirement contributions. You know the average bi-vocational pastor in Alabama and there’s a huge range from churches of seven to churches of about 200 who have about a bi-vocational pastor. Now, there are many full-time pastors who serve a church, may be 80 in attendance, but we have a wide variety of bi-vocational pastors. But the average is about $19,000 per year and about 1500 in benefits. And they’re probably in most of those cases providing retirement plan through the church retirement plan. All right, so insurance coverage could include term life insurance, employee accident insurance, medical insurance, disability insurance and dental insurance. We talked a lot about this, especially we’ve talked a lot about medical. The retirement plan is a wonderful thing to do, GuideStone does a wonderful job. And then some of that money could be used as housing for the ordained minister during their retirement years. And there are some extra benefits, there are some extra benefits for people who serve in Southern Baptist churches. And so the church retirement plan which is for Southern Baptist church, if you are any person in the church serving, working, getting paid in Southern Baptist church and you’re putting money into your retirement plan and you’re putting in $50 a month or more. I will say that for support staff this is, people who work 20 hours a week or more qualified for this, that there is a disability income benefit that could be $500 per month for up to five years if that employee should become disabled. The second benefit is a survivor plan, it’s like life insurance. And so if that person should, something should happen to them while they’re serving the church and putting money in to retirement, that amount could be up to $100,000 for their survivor. It goes down as we get older, so at age 36, it goes down to 75,000, age 46, it goes down to 50,000 and so forth. You do have to be in the plan for a year to get that full benefit, if less than a year and something happened to that employee then the benefit would be reduced. And then for ministers, ministers don’t have to be ordained, but any minister serving in the church in a ministerial role, they could get up to $17.50 a month. This is provided by the State Board of Missions. Now those first two are provided by the State Board of Missions and GuideStone. The last one, the matching contribution is coming solely from the State Board of Missions. The Mission Church Assistance Fund is for small churches who have a budget less than $75,000 per year. And there can be some assistance towards that ministers, that pastors retirement plan, which can be $50 per month for up to five years. And so we create this plan and these steps and the next step is for us to determine the personal income. And we should look at responsibilities and experience. We should look at inflation, we should look at the housing allowance and is it adequate for what the pastor needs? Things like of that nature. And we can look at some kinds of inflation studies that are out there. Also the salary study that is the layman salary study, It is online at alsbom.org/ccs, Church Compensation Services and you can get it there. Now, as a part of that, we need to plan for housing allowance. Housing allowance must be approved by the church, in some way, it must be approved in writing. So the in writing could be in the church budget as housing allowance, it could be in minutes of a meeting, a business meeting or it could be minutes of say personnel or finance committees, possibly the deacons as they meet. Maybe they’re the ones who approved the house allowance in some churches. So it’s got to be approved by the church in some manner and approved in a written form. So the minister’s responsibility is to present an estimate of housing and in the compensation planning guide, there’s a page that lists those things which could be housing allowance, such as the payment including principal and interest in taxes and insurance, the utilities, furnishings, upkeep and maintenance items, anything to provide the home. And that there’s a list there that minister could use to estimate his requirement for household house. So he presents an estimate. The church’s responsibility is they approve that estimate as housing allowance, it should be reviewed annually. However, it’s good to have a wording in there that says, “This housing allowance is in effect for 2021 and all future years until changed.” Something stated like that, that is set and tell change by official action. And so, now the limits of housing allowance, this note in the guide says, “Remember, the house allowance limits.” That’s really, the pastor should be the one who primarily thinks in those terms. You are limited to the smallest of these three numbers, the smallest not the largest, but you’re limited to what did the church approve as housing allowance? What did you actually spend on housing related items? And if you’re buying your home, what is the fair market value of your home furnished plus utilities? So for example, let’s say that your home would rent for furnished, say $15,000 and with the utilities, maybe $20,000, I’m just making that up. And I could spend 15,000 but I could spend 50,000 on my house that year. I could do a major remodel, I could really fix it up. I can replace all the flooring, I could do a lot to my house or I could really pay down the mortgage. I could spend a lot, but in that case, I would be limited to the smallest of those three numbers. If I asked for 15, now church might raise an eyebrow over that. But if I asked for 50 and they approved 50 and I spent 50, but the fair market real value furnished plus utilities was 20, then that would be my limiting factor, that’s what that means by remember housing allowance limits, I’m limited to the smallest of those three factors. And then we could use the compensation study to help us to know, just to know what the average, what’s the average? That’s all it is, it’s not a recommendation but it is average income in our region. And you can find that at alsbom.org/ccs. And then we put it all together and have a plan for how we’re doing compensation. And so here’s our summary. And then each year, we should review these and implement those into a plan. In your notes you’ll have that contact information for GuideStone and they do a wonderful job with this. Let’s stop for just a minute. We’ve got a real quick section, most of it’s review but a couple of those things are new. I’m gonna look and see if there’s any other questions that have come about. I don’t know, there it goes, it’s just a little bit slow. Looks and see if there’s any other questions. And I don’t see any new questions, so I will close that and we’ll move on with what’s new. We’re gonna try to finish up, probably about another 10 or 12 minutes and get y’all out of here. What’s new in 2021, we’ve talked about some of these. First of all, there are a lot of new resources and I’ve listed them in the financial issues book. You’ve got all my contact information, including my cell phone, the contacts like alsbom.org/ccs. One Great Sunday is a resource, that’s a website in which a lot of videos, short videos placed there for training. GuideStone is a wonderful, wonderful resource. And especially for our concerns, guidestone.org/compensationplanning. Now, of course we’ve said it and I wanna reiterate it because I’ve made a mistake in our book at first in December, the mileage rate is 56 cents per mile. We’ve talked about the three new forms, W-4 is a new form we talked in depth about that yesterday. So you may want to get the recording or the notes from yesterday. The 941 has new lines for it for the new Family Medical Leave Act. Now, this is Family Medical Leave Act 2020, Family Medical Leave Act original only call for the possibility of up to 12 weeks of unpaid leave for family medical emergencies, that one, 50 employees and more it’s required, those less than 50 employees, it’s not required. But the new one Family Medical Leave Act 2020, does require payments for people who were quarantined. And it was for two weeks of pay and it was for employers less than 500 and it included churches. And yet on the 941 there’s credits for keeping employees on the job in this manner. You can get a credit on your 941 and that’ll help pay for what you did, excuse me. And then the 1099 NEC is a new form, stands for Non-Employee Compensation. You cannot use the 1099 anymore. Non-Employee Compensation is not even there on the 1099 but this line is. You have to use the 1099 NEC, this would be your contract workers and how you report their income, you need to use that form. Here is the 1099 NEC, you see it’s a very simple form, the payers information, the recipient’s information and then box one, Non-Employee Compensation. So that makes it real simple. And box four would be if you did withhold any income tax, but that’s usually not done for a non-employee. But there it is right there, contract worker form 1099 NEC. You do not use the 1099 miscellaneous anymore. Also always obtain a W-9 before payment, W-9 is just a simple half-days form, it gives you their contact information and also gives their social security number. If it will let you know whether the person is incorporated or not and you’ll have their social security number. Now, churches can get messed up if you pay somebody before you get their W-9 information, if you pay somebody $600 or more and they’re not incorporated and you don’t have a social security number, you still must provide a 1099. But your church is gonna be penalized for providing a 1099 without a social security number. And you were supposed to do backup withholding of 28% but you’d have no social security number. So where’s that money gonna come from? It’s gonna come out of church’s pocket. So you don’t want to do that, always get your W-9 before you pay them. Here is another thing that’s new and I do did mention this, because it is brand new as of 2021, the Family Medical Leave Act 2020 has expired. However, and this is where you were supposed to, employers under 500 employees were required to pay when the employee is subject to quarantine order, has been advised by a healthcare provider to self quarantine, is experiencing symptoms. Number four is caring for an individual who’s subject to a quarantine order or are advised by a healthcare provider to quarantine. Is caring for our son or daughter of such employee of the school or place of care where that place of care has been closed? And employers can receive a credit on their 941’s. In 2021, it’s not required anymore. However, in 2021, you may do it voluntarily if you wish and you can still apply for the credit on the 941 form, so that’s brand new for 2021. There is new stimulus as of December, 2020, there’s a $600 stimulus check. Now for those who have gotten it so far, they’ve gotten it electronically deposited into their bank account. And if they’re gonna get a paper check it’s gonna take a while. But $600 per adult, if they’ve made less than $75,000 and filed an income tax filing, I think there’s another way of doing it if you made so little and you didn’t have to file, but that’s the automatic way. Or they made less than 150,000 up to 150,000 for a couple. There is new unemployment benefit that’s out there. It’s federal, an additional $300 per week for 11 weeks. There is a new round of PPP loans, that’s paycheck protection plan loans for small businesses, churches do qualify for that. Your church is gonna have to think about, some churches are opposed to doing that, any kind of government entanglement is sort of what they would look at. Other churches don’t feel that way and they may wish to apply for it. Well, there’s a new round and after you apply for it and receive it, you can qualify for loan forgiveness. It’s similar, it’s got a couple of new provisions. It’s similar to the original PPP loan. One of the things that they’re trying to do is they’re trying to provide some incentives to the bank to favor small businesses. And the first round of PPP loans, a lot of it was gobbled up by big businesses and some of them didn’t even qualify, but they got it anyway. So there is a new round of PPP loans. And just remember, we talked about this several times, Congress eliminated employee unreimbursed business expenses. Ministers must be able to have an accountable plan or that money is gonna be taxable. And then number three, moving expenses were eliminated as tax-free. So please note those things. Now, it is about time for us to quit and we’re gonna quit and honor your time. But if there’s any other questions, I’m gonna deal with those right now. And I think there may be, is as a minister of music considered, oh, first of all, I didn’t see that one in, that’s really helpful, thank you. And I’m so sorry, I don’t think in terms of Alabama so often, but you can write off unreimbursed business expenses for Alabama. And then this last one, “Is a minister of music considered ministerial staff even if not an ordained minister.” And I will say that depends on your church, that’s a great question. We have ministers of music who are truly a minister in every way. I know many ministers of music who do all kinds of ministerial duty. And for example, many of them are ordained. Of course, for example, they are involved in administrating the Lord’s supper. Some of them, a few of them baptized as well. A lot of them, many of them do funerals and other, some of them will do some kind of preaching or something like that if the pastors out. So in many, many churches that minister music is considered truly a minister. And because they have a minister job description, even if they’re not ordained because they have a minister job description, they would qualify for Department of Labor exempt status, ministerial exception. But also at the same time, we have some small churches where a music person, I know one church, they called their music person, that’s our song leader. And this particular man was not a minister. In fact, he was a band director and he was great at leading the music. I’ve really enjoyed it a lot. But he was not considered a minister, he was not ordained, not licensed. He was not considered a minister and not considered ministerial staff by their church. That’s just the way that I looked at it. So that question is going to depend largely on your church. Now, of course, if they were licensed or ordained, you would definitely consider that person ministerial staff, but if not, that’s going to be up to you and the minister you have and what is their role? What are they doing? And are those ministerial functions? Now, just leading the music is ministerial to me, but this particular church that I went to, they called it our song leader and that was the way that they looked at it. So that’s all the questions that I see right now. I’m gonna lead us in prayer and we’ll dismiss, I’ll hang out for a minute or two and if there’s any further questions, also if you have any questions that pop up, just give me a call or email me. And you’ve got all my contact information in these notes. Also that website, alsbom.org/ccs and you can find lots of information there. Hope this is helpful to you. we’ll be doing two more in two weeks from yesterday and then two weeks from today, those two are, one of them is going to talk a lot about housing allowance and how that works. And then the last one, we’ll talk a lot about contributions and some of the rules about contributions. All right, I’m gonna dismiss us in prayer, then we’ll talk about this last one. Father, thank you so much for today. Thank you for everybody, who’s been with us and pray that it has been beneficial and a wonderful time of learning and growing in all these things. Thank you for all that you’ve done for us and we just pray your blessings on each one, in Jesus name, Amen. Thank you all for coming, I’ll deal with this question. “How should one clarify this with their respective church?” I think that question should be dealt with as you go to a church, I think most for some kind of a ministerial role like minister of music, minister of youth, how will I be viewed by the church? And some of that is going to vary by circumstance. For example, if I’m a youth minister and I’m 20 years old, they might not call upon me to serve in ministerial roles, that they think of like send pastors out and somebody dies in the church and would I be called upon to lead that funeral? And a little bit of that would be my life experience, would I be called upon to do that? But I think that a minister going into a church should clarify that from the beginning and clarify that as discussion as made of the job description, will I be doing ministerial tasks? Now, being a minister of music is a ministerial role to me, but a few churches don’t look at it that way. Just talk with the church, let’s talk about this as we clarify my job description and so many of us we think of a job description as just a piece of paperwork that we’ve got to do and not very meaningful, but we really should make those job descriptions meaningful about what we really are doing. And that I would be called upon to do things in times of trouble, in times of need. I would be called upon to go to that family and help them in their spiritual time of need. But also for a minister of music, my job is to lead the choir members and the congregation to worship. A lot of people don’t really know how to worship and I’m supposed to help them to do that. I am to lead worship, you can’t get any more spiritual than that. And so I just think that there needs to be a discussion with the church about what is my role and what am I here for and what kind of spiritual parts do I play in that role? So, and I think it’s very important. My preference would be that ministers of music would be recognized for their spiritual leadership, but I know that’s not 100% of churches who do that. So I hope that helps, and I hope that the questions help with and all the questions that are here. And so, you’re all dismissed.

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