Nontaxable income for clergy?
Nontaxable income for clergy These are examples of sources of income that are non-taxable: • Qualified love gifts (person-to-person and within limits) Cannot be solicited Must be spontaneous in nature Must be clearly ascertainable as a gift with no service attached Cannot qualify as a tax donation for the donor Are motivated out of affection…
Reporting the Housing Allowance
Reporting the Housing Allowance The designated housing allowance may be reflected on Form W-2 in Box 14 with the notation, “Housing Allowance.” Though not required, this reporting method is suggested by Publication 517. Or, a church can report the designated housing allowance to a minister by providing a statement separate from Form W-2. This may…
Do managers need to be classified as exempt?
Do office managers need to be classified as exempt under the Fair Labor Standards Act? No, it’s fine to classify office managers as nonexempt. You are under no obligation to classify any employees as exempt, even if they meet the criteria under the Fair Labor Standards Act. You could have an entire workforce of nonexempt…
W-2 vs. 1099: Which workers get which?
W-2 vs. 1099: Which workers get which? As the economy continues to expand, churches now more than ever need to possess a thorough understanding of the classification for each person performing services for the church. Knowing whether the IRS views someone as your employee or as an independent contractor dictates tax obligations and associated paperwork,…
The Myths of the 1099-NEC forms
The Myths of the 1099-NEC forms 1099-NEC is a new form, as of the 2020 tax reporting year that has replaced some of the functions of 1099-MISC. The IRS requires you to report information about people who perform work for the church but are not on the payroll. This involves filling out Form 1099-NEC: Nonemployee Compensation. Unlike…
New Standard Mileage Rates for 2022
New Standard Mileage Rates for 2022 Beginning on January 1, 2022, the standard mileage rates for the use of a car (also vans, pickups, or panel trucks) will be: 58.5 cents per mile driven for business use, up 2.5 cents from the rate for 2021, 18 cents per mile driven for medical, or moving purposes…
Pro Advisor | Premium Support
Researching a clergy tax, payroll or HR issue on your own takes time and can leave you wondering if you’ve got the right answer. Turn to Clergy Financial Resources to save time, get the correct answers. .
Ministers are treated differently under the tax code than virtually anybody else in the country. They have advantages and disadvantages that no one else has. Often, confusion exists concerning clergy compensation, deductions and expenses. Our clergy tax professionals can sort out the complexity of clergy tax law. We will research and answer your questions and do all the tedious work that eats up your valuable time.
Most callers want answers to specific questions on tax returns or interpretations of new laws. Some already know the answer and just want verification, while others want guidance on where to look for clarification on what they are reading. We can provide just what you’re looking for.
When you have a question, just submit the question via our secure online system. Our full-time staff will answer your questions throughout the year.
Premium Only Plan
What Is a Section 125 Premium Only Plan?
A Section 125 Premium Only Plan (POP) allows employees to pay their share of employer-sponsored health insurance premiums with pre-tax dollars rather than after-tax income. By making this simple adjustment to payroll deductions, both employees and employers can realize significant tax savings.
Under a Premium Only Plan, employees elect to have their portion of health insurance premiums deducted from their pay before federal income taxes and, in most cases, Social Security and Medicare taxes are calculated. As a result, taxable wages are reduced, lowering tax liability for both the employee and the employer.
How Employees Benefit
Employees typically save between 20% and 40% on the portion of health insurance premiums paid through a Section 125 Plan, depending on their tax bracket and state of residence. Because premium contributions are made on a pre-tax basis:
- Federal income taxes are reduced.
- State and local income taxes may be reduced, where applicable.
- Social Security and Medicare taxes are generally reduced.
- Take-home pay increases without any increase in gross compensation.
These tax savings help make health insurance coverage more affordable for employees and their families.
How Employers Benefit
Employers also benefit from implementing a Section 125 Premium Only Plan because employee pre-tax deductions reduce taxable payroll. As a result, employers generally save on:
- Employer-paid Social Security taxes
- Employer-paid Medicare taxes
- Federal unemployment taxes (FUTA), in certain situations
- State unemployment taxes, where applicable
Depending on state law, some employers may also experience reductions in workers’ compensation premiums due to lower taxable payroll. These savings can often offset or exceed the cost of establishing and maintaining the plan.
A Section 125 Premium Only Plan is one of the simplest and most effective employee benefit strategies available, providing meaningful tax advantages for both employees and employers while helping make health insurance coverage more affordable.
Here’s what will happen next:
Step 1: Complete the enrollment form below
Step 2: A benefit plan advisor will review your questionnaire for completeness.
Step 3: Once the review is complete, we’ll prepare and email your Plan Document, SPD, Forms, helpful guides, and easy-to-follow signing instructions.
Health FSA Plan
Health Flexible Spending Accounts (FSA) are a type of Medical Reimbursement Plan. Health FSAs are one way for employees to use pre-tax dollars to pay for medical expenses, such as doctor visit copays, vision expenses, and prescription drug costs. FSAs are established by employers and are (usually) 100% employee funded.
The Health FSA reduces payroll taxes for both the church and the employee making it a popular benefit option. Qualifying Health Flexible Spending Account expenses include but not limited too: Vision Expenses including Glasses and Contacts, Health Plan Deductibles Rx – Prescription Drugs, Health Plan Co-Payments, Orthodontic Procedures, Chiropractic, Dental Charges, Blood Work, X-ray, and other Qualifying Medical Expense.
Read more about how FSAs work in this IRS publication (PDF).
Health FSA plan includes:
Resolution to Adopt a Plan- Includes minutes of the meeting to adopt the HRA Plan as an employee benefit. Plan Document – Plan Documents are personally prepared for each church and kept on file for review for IRS, etc.
HRA Summary Plan Description (SPD) – Explains the Plan Purpose, Who is Eligible, How To Enroll, etc. in easy to read language. Also includes all information required by the Internal Revenue regarding the Plan Year Start and End Dates, Agent for Legal Service, Fed. ID#, and information regarding COBRA, FMLA, and required DOL information.
Election and Claim Form – Personalized for your church, it will include the Election Agreement and Claim Form to submit bills to the church for reimbursement.
Administrative Handbook – Includes sections on Administration, Non-Discrimination Testing, and Reporting and Disclosure information.
Read more about how FSAs work in this IRS publication (PDF).
Here’s what will happen next:
Step 1: Complete the enrollment form below Step 2: A benefit plan advisor will review your questionnaire for completeness.
Step 3: Schedule an Appointment to finalize your plan.
Once the review is complete, we’ll prepare your Plan Document, SPD, Forms, helpful guides, and easy-to-follow signing instructions.
Dependent Care Assistance Plan (IRC 129)
A Dependent Care Assistance Plan (DCAP) is a valuable, tax-advantaged benefit that allows churches to help pastors and staff cover the cost of qualifying dependent care expenses—such as childcare, preschool, or adult day care—while they are working or performing their ministry duties.
Through a DCAP, the church can reimburse eligible employees for these expenses on a pre-tax basis, meaning the funds are not subject to federal income or payroll taxes. This results in meaningful tax savings for employees while also reducing the church’s payroll tax obligations.
The benefit and value of a DCAP lie in its ability to:
- Lower out-of-pocket childcare costs for employees
- Increase take-home pay through tax-free reimbursements
- Provide a family-friendly benefit that supports work-life balance