FAMILY TRAVEL –taxable income?
To loosely paraphrase a familiar scripture from Jeremiah … “Vacation is past, the summer has ended, and we are not safe!” Many times a pastor will find it convenient to combine a ministry conference with a family vacation –especially when the conference is located near a popular tourist site. Nothing wrong with this great use of calendar time, and even an economical saving as travel expenses are reduced to one trip. The problem arises, however, when the church is paying for the travel expenses with no reimbursement from the pastor for the personal benefit …or the “fringe benefit” is not reported as taxable income. This has become a “hot button” for the IRS, and can potentially result in additional tax liabilities PLUS penalties to the pastor for unreported income …and penalties to the church for failure to report income. This past year (2013), the IRS audited a church in Virginia –initiated due to erroneously filed Forms 941 –which resulted in a far-reaching review of all of the church’s accounting records. One of the 44 items in the IRS Document Request Form 4564 stated as follows: “…it appears as though the organization paid expenses for Pastor’s spouse to travel with him. Why did the organization pay for her travel expenses? Who approves her travel? Why were these expenses not reported on Pastor’s Form W-2 as compensation? Please detail what expenses were paid for Pastor’s spouse and include a description of each. Also, are any expenses paid for Pastor’s children? If so, please provide the same details as was requested for Pastor’s spouse.” Under Section 262 of the Internal Revenue Code, no portion of the travel expenses that is attributable to personal, living, or family expenses is deductible. Additionally, Treasury Reg. Sec. 1.31-21(a)(4) states that a benefit provided on behalf of an employee is taxable to the employee even if the benefit is received by someone other than the employee, such as a spouse or a child. What to do if this applies to you? … a church and/or pastor? If the church has paid for pastor’s personal expenses, you have two options: (1) pastor can reimburse the portion allocated as personal, or (2) church can include the amount on pastor’s Form W-2. Both options call for good (accurate and adequate) supporting...
Accounting in Scripture
CONTRIBUTIONS –2 Corinthians 8:19-21 “… chosen by the churches to accompany us as we carry the offering, which we administer in order to honor the Lord himself and to show our eagerness to help. “We want to avoid any criticism of the way we administer this liberal gift. “For we are taking pains to do what is right, not only in the eyes of the Lord but also in the eyes of men.” ACCOUNTS PAYABLE –Romans 13:7-8 “Give everyone what you owe him. If you owe taxes, pay taxes; if revenue, then revenue; if respect, then respect; if honor, then honor. “Let no debt remain outstanding, except the continuing debt to love one another, for he who loves his fellowman has fulfilled the law.” PAYROLL –1 Timothy 5:17-18 “The elders who direct the affairs of the church well are worthy of double honor, especially those whose work is preaching and teaching. “For the Scripture says, ‘Do not muzzle the ox while it is treading out the grain,’ and ‘The worker deserves his wages.’” FUND ACCOUNTING –Hebrews 4:13 “Nothing in all creation is hidden from God’s sight. Everything is uncovered and laid bare before the eyes of him to whom we must give...
Health Care -NEW TAX ISSUE
In response to the many calls, emails, inquiries —and to those who are unaware and oblivious to changing tax laws… “…employers may no longer reimburse employees for, or directly pay, the cost of individual health insurance policy premiums and exclude such amounts from the employee’s gross income. Effective January 1, 2014, these “employer payment plans” must be paid with “after tax” dollars. The employer is only allowed to use “pre-tax” dollars to pay for health insurance premiums if the employer offers a group health insurance plan.” 1) If the employer reimburses an employee for health insurance premiums —TAXABLE INCOME. 2) If the employer pays a premium to the insurance company for employee’s individual health insurance —TAXABLE INCOME 3) If the employer offers a group health insurance plan, premiums may be paid with “pre-tax” dollars. Employers-Church-Bookkeeper: If you have already processed payroll for this year, and included insurance reimbursements or payments directly for an employee’s individual health insurance policy —please review your payroll records to be sure these amounts have been entered as taxable income and appropriate taxes have been withheld —and make any adjustments necessary, including additional tax deposits for the first quarter. Attached for your reading pleasure are two recent communications received which address this new tax law. E-Mail_Update_03-04-14 (3) Insurance_Premiums_Taxable...
Christmas Gifts -Taxable Income?
Taxable Christmas Gifts After the holidays are over, the church must sort out which “gifts” to employees and ministers were taxable and which were not. Generally, it is assumed that no gift is taxable. However, the Internal Revenue Service does not agree with that assumption. “Gifts,” such as a church paid trip to Israel for the pastor or an all expense paid weekend away, are taxable items to the recipient. Smaller “gifts” often create more discussion and controversy. In a recent ruling, the IRS addressed the tax consequences of these smaller gifts. Simply put, the IRS has determined that any “de minimis fringe benefit” does not constitute taxable income. Examples of a “de minimis fringe benefit” include a ham, turkey, or gift basket as an annual holiday gift. However, the ruling goes on to point out that a “cash equivalent,” such as a gift certificate, is a taxable gift. Even though the goods acquired with the gift certificate would have been a nontaxable “de minimis fringe benefit” had it been provided by the employer, the gift certificate is taxable as income. A simple rule of thumb is that all larger gifts given by the employer/church to the minister or staff is reportable as taxable income. Smaller items given as holiday gifts may not be taxable. However, a cash gift or gift certificate, regardless of the amount, must be reported as taxable income to the recipient. The other question on gifts that arises concerns those that are given directly to a minister or staff person by a church member. Again, the simple rule of thumb is that if the gift is given directly to the minister/staff person by the member it is a nontaxable gift. This general rules applies whether the gift is an object or cash. The donor gets no charitable gift deduction on their tax return. On the other hand, if the member makes a gift to the church, either of an item (a car for example) or of cash, and designates that it be given to a particular minister/staff person, the gift is then taxable to the recipient. Of course, the donor generally is also able to claim a charitable gift deduction on his or her tax return....
Employee or Contractor?
Payments for Services Any person asked to perform a duty and, as a result of performance of that duty receives compensation, is considered an employee and taxes must be withheld and reported. (The only exception is for ordained, licensed and/or credentialed ministers.) Any person not considered to be an employee who receives $600 between January 1 and December 31 of any single year, will be required to furnish the church with their Social Security number and a Form 1099-MISC will be issued after December 31. Employee vs. Independent Contractor Employees typically: Receive salaries or hourly wages (whether part-time or full-time) Can be fired Can quit without penalty Must submit reports Must obey instructions Must do the work themselves Are hired to provide services for an indefinite period of time, rather than to accomplish a particular task Are eligible for fringe benefits (health, disability, pension, sick pay, etc.) Are provided what is needed to do their job. Are reimbursed for expenses Independent contractors are considered self-employed. They typically: Set their own hours Decide how to get the work done (rather than follow someone else’s instructions) Offer their services to the public Provide their own equipment May work on someone else’s property, and for several persons at the same time May employ assistants Are hired to do a particular task, and are paid by the job Have a substantial financial investment in the work The above lists are intended as guidelines in determining the appropriate status for tax reporting purposes; it is not required that all items apply to make a determination. For a more detailed discussion, reference Pub. 15-A, Section 2 “Employee or Independent Contractor,” located at http://www.irs.gov/pub/irs-pdf/p15a.pdf. Completing Forms 1099 and Filing Form 1096 If a church has independent contractors, they must be given a Form 1099 before the last day of January reflecting all payments made to that individual during the previous year. The Form 1099 should be used to reflect payments to independent contractors, evangelists, traveling singing groups, etc. If the amount given to the person is less than $600, no Form 1099 is required. However, if multiple checks are given to the person that are individually less than $600 but aggregate more than $600, a Form 1099 must be issued. Form 1096 serves as the transmittal form for all informational returns such as the Form 1099, and must be filed by no later than the end of February each year. Form W-9 To complete all the tax information forms required, certain identifying information is needed on each person. The church needs to know the person’s legal name, their address, and their...
Recent Comments