How to report social security allowance
When completing a W-2 for an ordained pastor who receives a salary and an additional allowance for Social Security and Medicare taxes (often referred to as a SECA allowance), the salary and the SECA allowance should be included in Box 1. Here are the steps to do so: Box 1 – Wages, Tips, and Other…
IRS guidelines on designating a housing allowance
The IRS guidelines on designating a housing allowance for clergy are detailed and specific. Here is a comprehensive overview: Designation of Housing Allowance Advance Designation Requirement: The housing allowance must be officially designated in advance of payment by the employing church or other qualified organization. This designation can be made in an employment contract, in…
Determining Worker Classifications
Exempt or Non-exempt? Classifying exempt and non-exempt church employees is just as crucial as distinguishing between independent contractors and employees. Generally, this involves a straightforward separation between salaried (exempt) and hourly (non-exempt) employees, but that is not the only criterion. Organizations must adhere to the Fair Labor Standards Act (FLSA) guidelines to determine the classification…
Defining a minister’s tax home related to travel deductions?
The IRS defines a taxpayer’s “tax home” for travel deductions under IRC § 162(a) as the taxpayer’s regular or principal place of business. If the taxpayer has no regular or principal place of business, the tax home is considered the taxpayer’s regular place of abode in a real and substantial sense. This definition is crucial for determining…
Understanding Clergy Dual Tax Status
Clergy are defined as dual status because they are treated differently for various tax purposes under the Internal Revenue Code (IRC) and Treasury Regulations. Specifically, clergy members are considered self-employed for Social Security and Medicare taxes under the Self-Employment Contributions Act (SECA). Still, they can be regarded as employees for income tax purposes. This dual…
Should I issue Form W-2 or Form 1099-NEC for our minister?
Most churches will issue a Form W-2 to a minister for their compensation if the minister is considered an employee of the church. The determination of whether a minister is an employee or an independent contractor is crucial in deciding whether to issue Form W-2 or Form 1099-NEC. Here are the detailed guidelines and criteria…
Can the board declare a housing allowance without a specific amount?
When your board declares your annual clergy housing allowance, they must declare a specific dollar amount or percent as the housing allowance. The designation must be made in advance of the payment. A general declaration that you have a housing allowance without naming a specific amount would be insufficient. Designating a housing allowance without specifying…
What type of expenses qualify for clergy housing allowance
The clergy housing allowance, as outlined in Section 107 of the Internal Revenue Code, allows ministers to exclude from gross income the rental value of a home furnished to them as part of their compensation or a rental allowance paid to them as part of their compensation, to the extent that it is used to…
Why are clergy subject to Self-employment tax
Clergy are subject to self-employment tax because their earnings from ministerial services are considered self-employment income under the Self-Employment Contributions Act (SECA). This classification is based on several key provisions and interpretations of the Internal Revenue Code and related regulations. Definition of Net Earnings from Self-Employment: According to § 1402(a) of the Internal Revenue Code, “net earnings…
Donation of public traded securities
To facilitate the donation of publicly traded securities to your church, the process involves several steps to ensure compliance with IRS regulations and maximize the donors’ tax benefits. Here’s a guide on how to handle such a donation: Establish a Brokerage Account for the Church Open an Account: The church should set up a brokerage…