Ten Fundamentals of Clergy Tax

10 Fundamentals of Clergy tax George Barna – 9 Habits of Highly Effective Churches…Habit #7 - Highly effective churches utilize holistic stewardship practices. 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 man. (2 Cor. 8:20-21)

10 Fundamentals of Clergy tax The structure of clergy compensation is evidence of the congregation’s stewardship. Clergy are almost always employees for income tax purposes. Church’s job to decide Form W-2 Form 1040

10 Fundamentals of Clergy tax 3. Clergy pay social security as self-employed. SECA vs FICA Employer responsibility Congregation match is taxable Congregation reimbursement is taxable Quarterly payments 4. Clergy rarely qualify to opt out of social security.

10 Fundamentals of Clergy tax 5. The housing allowance can be the clergy’s best tax friend.  Designation vs. Exclusion

10 Fundamentals of Clergy tax 6. Housing Allowance….4 Tests 1. Reasonable compensation 2. Actual Expenses 3. Amount Designated 4. Fair Rental Value

10 Fundamentals of Clergy tax 7. Tax-free and tax-deferred fringe benefits increase your take-home compensation. Nondiscriminatory Good stewardship of resources 8. Properly handling clergy business expenses starts with an accountable expense reimbursement plan. Budgeted expenses Accountable system

10 Fundamentals of Clergy tax 9. Fees and honoraria must be reported as income. Paid by congregation – W-2 Not paid by congregation – 1099-MISC 10. Charitable giving is tax deductible!

Questions MBFoundation.com/individual-championingstewardship

MB FOUNDATION Jon Wiebe (800) 551-1547 jwiebe@mbfoundation.com is available to answer questions that you may have regarding church & clergy issues. Contact us for more information. Jon Wiebe (800) 551-1547 jwiebe@mbfoundation.com