1. Understand Church Payroll

2. Tax Helps

3. Commercial Helps Church & Clergy Guide by R. Hammar (1-800-222-1840)
Minister’s Tax & Financial Guide by D. Busby
Church and Nonprofit Organization Tax & Financial Guide
by D. Busby
Church Law and Tax Report (bimonthly)
Church Finance (bimonthly)

4. Helpful Internet Addresses
Christian Ministry Resources –
NACBA –
American Payroll Assoc.: What’s New
State links –
Tax Wire –
Federal and State Links –

5. Tax Helps From IRS Publication 969
-HSAs & Other Tax-Favored Health Plans
Publication 517
-Social Security and other information for clergy
Publication 1828
-Addresses all forms that tax-exempt people need
Publication 526 and 1771
-Charitable Contributions

6. Top Tax Mistakes Made by Churches
Improperly classifying employees as self-employed (independent contractors)
Failing to furnish a W-2 to each employee (including ministers) and/or a Form 1099-Misc to certain non-employees
Failing to include taxable fringe benefits (such as non-accountable expense reimbursements, social security supplements, and “special occasion” gifts) in wages on Form W-2
Including the minister’s housing allowance in wages on Form W-2
Providing contribution receipts to members who donate their services to the church or to other individuals without proper organizational control

7. Church Workers Volunteers Minister Employees Non-Minister Employees
Independent Contractors
IRS requires nothing
2 Suggestions:
1-Job description
2-Personal reimbursements
Form I-9
Form W-4
State New Hire Reporting
Form W-2
FICA Tax WH
Inc Tax WH
Form 1099-Misc

8. Employee vs. Independent Contractor
Let’s decide . . .

9. 20 Factor Employee Test Reports Instructions
Pay by the hour, week or month
Business & travel expenses
Tools & materials
Investment
Profit or Loss
Work for more than one company at a time
Serving the public
Right to fire
Right to quit
Instructions
Training
Integration
Personal service
Hiring, supervising & paying assistants
Continuing relationship
Set hours
Full-time work
Work on premises
Set work order

10. Now let’s talk about Minister Employees

11. Ministry Credentials General Rule – Ministry Begins with Ordination
Exception
Licensed minister who has been granted authority to perform “substantially all” the religious functions of an ordained minister
Marriages
Funerals
Baptisms
Communion
Preaching

12. The Minister’s Dual Tax Status
Pastor and His Taxes
The Minister’s Dual Tax Status
Income Tax
Social Security Tax
Employee
Self-Employed

15. * All employees must be reported.
Check your state for your specific website!
Example: Colorado

16. Example: Colorado

17. What to Report Employee Name Employee Address
Employee Social Security Number
AND
Employer Name
Employer Address
Employer Federal Identification Number (FEIN)
Additionally, the Colorado State Directory of New Hires encourages employers who report electronically or magnetically to report three additional data elements:
Employee Date of Hire
Employee Date of Birth
Employer Payroll Address (if different employer address)

18. First Name, Initial Last Name
xxx-xx-xxxx
xxxxxxx
xxxxx
84-xxxxxxx
Church Name
Address
City, State, ZIP
First Name, Initial Last Name
Employee’s Address
City, State, ZIP
E Annuity
C Insurance over
$50,000
Always the same
Housing Allowance
$ XX,XXX CO
Your church #
xxxxxxxxx
-0-
Last Name

19. Insurance
Insurance over $50,000
AGE COST
Under 25 $0.05
$0.06
$0.08
$0.09
$0.10
$0.15
$0.23
$0.43
$0.66
$1.27
70 and above $2.06
Church pays for a $100,000 Life Insurance Policy. This is $50,000 of insurance over the norm.
$100,000
$(50,000)
= $ 50,000
Divided by $1,000 =
x Age group 40-44
= $ 5 x
= $60

20. Annuity An annuity that is a benefit An annuity paid by the pastor.
Two Examples:
An annuity that is a benefit
An annuity paid by the pastor.

21. Accountable Reimbursements
Two Examples:
Out of the salary/compensation package.
As part of the benefits package.

22. Housing Allowance Worksheet Minister’s Housing Expenses Estimation
Pastor’s Name:
For the Year:
Date Designation Approved:
Estimate your allowable housing expenses, which you will be paying directly.
Estimated Expenses
House Payment (PITI*) or Rental Costs $
Down Payment/Real estate Commission/Costing Fees
Homeowner’s /Renter’s Insurance
Umbrella Liability Insurance
Storage rental fees
Structural maintenance and repair
Landscaping, gardening and pest control
Furnishings (purchase, repair, replacement)
Decoration and redecoration
Utilities (gas, electricity, water. etc.) and trash collection
Local telephone expenses (base charge)
Homeowner’s association dues/condominium fees
Cleaning materials
Cable costs
Other housing expenses
  Total $  
*PITI – Principal, Interest, Taxes, and Insurance. Loan payments on home equity loans or second mortgages are only includible to the extent proceeds were used for housing.

23. How to figure “Salary” Add In: Non-Accountable Reimbursement Funds
Base Salary
Non-Accountable Reimbursement Funds
Special Occasion “Gifts” (Christmas)
Payment of S.S. taxes by church
Payment of car for business use
Life Insurance that exceeds $50,000
Pastor’s Discretionary Fund
Subtract Out:
Housing Allowance
Medical Insurance Premiums
Tax Scheduled Annuities
Accountable Reimbursement Plan

24. Now let’s talk about Non-Minister Employees

25. Church Workers Volunteers Minister Employees Non-Minister Employees
Independent Contractors
Nothing
Form I-9
Form W-4
State New Hire Reporting
Form W-2
FICA Tax WH
Inc. Tax WH
Form 1099-Misc

28. Check your state for your specific website!
Again, all employees must be reported.
Check your state for your specific website!
Example: Colorado

29. xxx-xx-xxxx
xxxxxxx
xxxxx
84-xxxxxxx
xxxxxxx
xxxxx
Church Name
Address
City, State, ZIP
xxxxxxx
xxxxx
First Name, Initial
Last Name
E Annuity
Employee’s Address
City, State, ZIP
C Insurance over
$50,0000. CO
Your Church #
xxxxxxxxx
xxxxx

30. 84-xxxxxxx Name Address City, State Zip CO XXXXXXX $XX,XXX $XX,XXX.XX
Signature Title Date

31. Now let’s talk about Independent Contractors

32. Church Workers Volunteers Minister Employees Non-Minister Employees
Independent Contractors
Nothing
Form I-9
Form W-4
State New Hire Reporting
Form W-2
FICA Tax WH
Inc Tax WH
W-9
Form 1099-Misc

33. Form 1099-Misc General Rule Exceptions
Must be filed on every non-employee to whom the church makes aggregate payments totaling $600 for the year
Exceptions
Attorney fees are always filed on Form 1099
Accountable travel expense reimbursements

35. Name of individual or company
Church Name
Address
City, State, ZIP
Phone
xx,xxx,xxx.xx
- 0 -
84-xxxxxxx
xxxxxxxxxx
Name of individual or company
Street address
City, State, ZIP

36. xx x Church Name Address City, State XXXXX Douglas B. Lohrey xx
84-xxxxxxx
- 0 -
xx,xxx.xx x
Sign
Title
Date

37. Now let’s talk about Contributions

38. Sample Contribution Policy
Gifts to the church designated for the use of a specific individual or individuals are to be discouraged. Such gifts will not be reflected on the donor’s record of contributions. However, gifts designated to the church benevolence fund, administered by the church benevolence committee, will be reflected on the donor’s record of contributions if no “strings” are attached to the gift.
The church will accept most types of non-cash gifts such as corporate stocks, land, furniture, clothes, books, art, etc. A letter from the church will be sent to the donor, acknowledging the date of receipt and providing a brief description of the property or items donated. However, the acknowledgement letter will NOT provide an estimated fair market value of the property donated and neither will the donor’s record of contributions reflect receipt of the non-cash gift.
To be included in a given year’s record of contributions, the contributions must be received by December 31, or if mailed, the envelope must reflect a postmark no later than December 31.
The value of time or services contributed by an individual to the church will not be valued by the church or posted to the donor’s record of contributions.

39. What IS a Designated Contribution?
The church must ordain (set-up) the fund.
The individual must give to this ordained fund.
The individual then receives a contribution credit.

40. What is NOT a Designated Contribution?
The individual cannot just ordain his/her own fund
The individual does not get contribution credit in this instance

41. The $250 Substantiation Rule §170(f)(8)
The Acknowledgement Must:
Be in writing
Clearly identify donor by name
Give date and amount of each $250 or more donation
Describe any non-cash property or “out of pocket” expense with no stated value or amount
Provide information on the value of any goods or services (if any) provided by the church in return for the contribution
Be furnished “contemporaneously” to the donor

42. Definition of a Charitable Deduction §170
A gift of cash or other property
Delivered to church before the close of the year
No conditions on payment
No personal benefit to the contributor
Made “to or for the use of” qualified organization
Not in excess of the amounts allowed by law
Subject to substantiation

43. The Property Disposition Rule – §6050L
Applies to Disposition of Donated Non-Cash Property (except publicly traded stock) valued at $5,000 or more
Sold or Exchanged
Within 3 years of receipt
Form 8282 due to IRS within 125 days of disposition – copy to donor
For the donor to get tax credit, a church employee must sign the 8283

44. The Vehicle Donation Acknowledgement Rule
Effective January 1, 2005
Applies to donation of cars, boats, and aircraft valued over $500
General Rule – Donors deduction is limited to gross proceeds from sale by church

45. The Vehicle Donation Acknowledgement Rule
Exceptions to General Rule
-Allows donor to claim fair market value of vehicle, even if:
Church gives the vehicle to needy individual
Church sells the vehicle to a needy individual at a significantly below-market price
Church makes significant intervening use of the vehicle prior to sale
Church makes material improvement to the vehicle prior to sale

46. How to receive/deal with an offering
Receive the offering
Put it in a safe place
Not a room where people can play with it
Not an unlocked room
Needs to be a counting committee
Deal with it that day
Count it all and give totals to treasurer
Deposit right after you count it
Give deposit slip to treasurer, as well as supporting documentation
She/he should do all the work in the checkbook from deposit slip
Pay checks/write
Approved by proper people
Two signature checks
Mail out
Do reconciliation of checkbook
Present financial statement to church

47. Business vs. Commuting Miles
Always
Deductible
Always
Deductible
Prospective Member
Always
Deductible
Never Deductible
Parsonage
Church
Never Deductible
(if a regular stop)
Always
Deductible
Local Hospital

48. The Importance of An Audit

49. Reasons for Regular Audits
To protect the treasurer
To protect the integrity of church funds
To show the community the church handles its financial matters with integrity
To make sure the church is in compliance with the IRS regulations.

50. Questions? Doug Lohrey dlohrey@cbgc.org
If you have any questions,
please call me.
Doug Lohrey
ext. 224