W-2 & Year-End Reporting for Local Churches ~Emily Graber, Senior Staff Accountant, Iowa Annual Conference of the UMC

2018 W-2 Sample

2018 W-2 Box 1 Box 1 – Wages should include total pay for the year, including any Housing Compensation (per Form I, Box 3) & the taxable cost of group-term life insurance over $50k (Box 12, Code C), less your Housing Exclusion (per Form I, Box 4) and certain elective deferrals, such as to the United Methodist Personal Investment Plan (UMPIP). If any non-accountable travel allowances are given, the allowance should be included in taxable wages. All accountable travel reimbursements can be excluded from W-2 wages.

2018 W-2 Box 1 Reduce the Box 1, Wages by all pre-tax deductions that would be deducted through your payroll system such as: Health Insurance Dental Insurance Employee H.S.A. Contributions UMPIP Employee Contributions Employee F.S.A. Contributions

W-2, Box 1 Formula = 2018 Form I, Box 1 Cash Compensation + Box 3 Housing Compensation – Box 4 Housing Exclusion

W-2, Box 1 Formula = 2019 Form I, Box 1 Cash Compensation + Box 2 Housing Compensation – Box 7 Housing Exclusion

2018 W-2 IRS Parsonage Allowance vs. Form I Housing Exclusion For tax purposes, the IRS normally uses the terminology ‘Parsonage Allowance’ Even though the terminology is different, the IAUMC’s use of the term ‘Housing Exclusion’ on Form I means the same as the IRS term ‘Parsonage Allowance’ Both refer to the amount allowed for clergy to exclude from their cash income related to their cost of maintaining a home near the church. This a tax benefit exclusive to members of clergy, so is not always applicable to the serving pastor if he/she is not ordained, commissioned or licensed.

2018 W-2 Box 2-9 & 11 Box 2 – Federal taxes withheld from paycheck should be $0 unless clergy elect for optional withholding through their church. Boxes 3-9 & 11– All of these boxes should be blank. Clergy are not subject to Social Security or Medicare until they file their personal returns and report self-employment taxes.

2018 W-2 Box 10 Box 10 – Dependent care benefits would be blank unless the clergy elect to deduct from wages for dependent care costs through the cafeteria/flex plan.

2018 W-2 Box 12 Box 12 – This box is used for any information specified by the IRS that does not have its own box. There are codes from A-EE but the most common that could be used for clergy are: Code C reports any taxable cost of group-term life insurance over $50,000. Go to the link at the end of this presentation for a helpful calculator on our website. This amount needs to be added back to Box 1 Wages Code E is used for any voluntary, pre-tax, salary reduction contributions to the UMPIP, which is a 403(b) plan. Post-tax salary reductions are NOT disclosed in this box. Code W is used for any employer contributions made to a health savings account. You can get this number from you pastor’s annual H.S.A. statement or from Linda Remster in HR at the Conference. Your pastor can also log in to the First American Bank H.S.A. website. After they login, click the Activity tab & on the left it will show total contributions for 2018. This would include any employee H.S.A. contributions as long as they were made through the Conference’s salary reduction plan.

2018 W-2 Box 12 Box 12 – Common Question Code BB should be used if any UMPIP contributions are made post-tax to a Roth. This amount should be included in Box 1 Wages. Code W should be used to disclose H.S.A. contributions. If your clergy is participating in the H.R.A. plan then that deduction is NOT included here. Code DD – Cost of Employer-sponsored health coverage. This is NOT required to be disclosed for any churches issuing fewer than 250 W-2’s.

2018 W-2 Box 13 Box 13 – Retirement plan box should be checked for all clergy unless they have elected NOT to have contributions made to the UMPIP on their behalf.

2018 W-2 Box 14 Box 14 – The “Other” box should include information on clergy housing. Regardless of if clergy own or rent their home or live in a church parsonage, you need to disclose the approved amount shown in Box 4 on their Form I for 2018 as a ‘Parsonage Allowance’. If clergy own or rent their home, this amount may be excluded from clergy income to the extent it is used to pay expenses in providing a home, including rent, mortgage interest, utilities, repairs, furnishings, etc. If clergy live in a church parsonage, the fair rental value of the parsonage need not be included on the W-2. However, the clergy should maintain some documentation for this amount because it needs to be added to their W-2, Box 1 Wages to determine their SE taxable wages when filing their personal returns.

2018 W-2 Preparation

2018 W-2 Box 14 Parsonage Allowance Notes If clergy served for only part or half of the year with your congregation, their parsonage allowance needs to be pro rated accordingly. If clergy are a multiple point charge, usually only one church W-2 shows the entire parsonage allowance. If more than one church wants to include it on their W-2, then it needs to be pro rated accordingly. If clergy choose to live in their own home when a parsonage is available, they can still elect a parsonage allowance. The amount on Box 4 of their Form I would still need to be approved at the charge conference.

2018 W-2 Box 15-18 Box 15 – State wages should agree with Box 1 Federal Wages Box 16 – State tax information generally will be $0 unless optional withholding is set up through the church. Box 17-18 – Generally, these boxes will be left blank as Iowa does not allow local income tax to be withheld. The local school district tax is collected when taxes are filed based on residency so would not be withheld from clergy wages.

2018 W-2 Special Considerations All individuals serving as clergy regardless of part-time or full-time status and regardless of if they are ordained, commissioned or licensed clergy should be receiving a W-2 for their services. Only ordained, commissioned or licensed clergy qualify as clergy for tax purposes. Churches should still disclose their housing allowance on their W-2, but the individual would not be considered a clergy for tax purposes. You would not reduce their taxable wages by the housing allowance.

2018 W-2 Special Considerations: Printing W-2’s There is an informational copy of this form at https://www.irs.gov/pub/irs-pdf/fw2.pdf Deadline to file W-2’s & W-3’s with the IRS is now January 31, 2019. This form is provided for informational purposes only. Copy A appears in red, similar to the official IRS form. Do not file copy A downloaded from this website with the SSA. The official printed version of this IRS form is scannable, but the online version of it, printed from the IRS website, is not. A penalty may be imposed for filing forms that can’t be scanned. See the penalties section in the current General Instructions for Forms W-2 and W-3 for more information. To order official IRS forms, call 1-800-TAX-FORM (1-800-829-3676) or https://www.irs.gov/Businesses/Online-Ordering-for-Information-Returns-and-Employer-Returns, and the IRS will mail you the scannable forms and other products. You may file Forms W-2 and W-3 electronically on the SSA’s website at https://www.socialsecurity.gov/employer/. You can create fill-in versions of Forms W-2 and W-3 for filing with SSA. You may also print out copies for filing with state or local governments, distribution to your employees, and for your records.

Other Year End Reporting

Other Year End Reporting Form 1099-MISC should be used for all independent contractors paid >$600 per year Examples: Church Secretary, Organist, Musician, Janitor, Lawn Care, Snow Removal Depending on the agreement with the church, this relationship can be employee/employer Amount paid should go in Box 7, Nonemployee Compensation Rent paid during the year >$600 should go in Box 1. Deadline to mail 1099’s to recipients & file the 1096 with the IRS is now January 31, 2019.

Other Year End Reporting Form 990 & 990-EZ: This form does NOT need to be filed for any church or church-affiliated organization. Sometimes others may request a copy of this form. You should be able to indicate that churches are exempt from being required to file this tax form.

Other Year End Reporting In accordance with the Affordable Care Act, all health insurance providers will be providing their participants with a Form 1095-B verifying the months you were covered and all individuals covered under the plan. This form will be mailed to you by Wellmark if you are covered under the Conference plan. It will be available to download from the Wellmark website by 1/31/19.

Other Year End Reporting Wellmark website: www.wellmark.com After you login to the website with your personal information, there is a dropdown box on the top right that will default to your current year (1/1/19-12/31/19) coverage. Change that dropdown box to the period ending 12/31/18. Then move your mouse over the ‘My Account’ tab on the top-right.  From there a drop-down menu should pop up and you will need to click on ‘My Tax Information’.  Once the next site loads, you will see a box on the right titled ‘My Tax Information’ with buttons to ‘View’ or ‘Download’ this form.  You will be able to print or save the document to keep with your tax documents and give to your tax preparer once the form is available.

Resources GCFA Tax Packet: http://www.umc.org/gcfa/tax-packet Iowa Conference Treasurer’s Notes: http://iaumc-email.brtapp.com/archivearea/163 Iowa Conference Clergy Tax Information: http://www.iaumc.org/tax Iowa Conference Taxable Value of Group Life Insurance Calculator 2018: https://www.iaumc.org/files/fileslibrary/admin_services/taxable_value_group_term_life_insurance_2018.htm IRS: www.irs.gov

Questions??? Contact Emily Graber, Senior Staff Accountant at the Conference at: Emily.graber@iaumc.org (515)974-8923 Benefits & Direct Bill, HR Joni Mardesen, (515)974-8940 Linda Remster, (515)974-8921