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Question:
A church's missions committee wishes to give Christmas and birthday gifts to its missionaries. Are these gifts taxable to the missionaries? Will the church be required to file Form 1099-MISC? Is there a way to give a missionary a non-taxable gift?
Answer:
Generally, all gifts to missionaries are consider taxable as compensation. However, the church will not have to issue a Form 1099-MISC to individual missionaries for gifts sent to and managed by the missionaries' mission agencies. These agencies are responsible to issue an appropriate report of income (either Form 1099-MISC or Form W-2). Further, mission support sent directly to missionaries (not through an agency) are subject to government reporting unless they total less than $600 per year.
There is one way that gifts can be given to a missionary without being taxable to the missionary. Gifts given by anindividual to an individual are neither deductible by the donor, nor taxable tothe donee. If a member on his or her own volition sends money to a missionary rather than responding to a church-sponsored collection, it will be non-taxable gift to the missionary and non-deductible by the donor. As soon as the church sponsors the collection as acorporate activity it becomes compensation to the missionary anda deductible charitable contribution to the members.
For further discussion and IRS documentation please type “Missionary" and"gifts” in the search window. We believe you will find a number of relevant blog posts.
10 Kasım 2012 Cumartesi
403(b) Retirement Distributed as Housing Allowance
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Question:
A pastor recently left his ministry to start a business. While in the ministry, he had a 403(b)* plan which he contributed to for over 12 years. When he retires, are the distributions from this 403(b) eligible for housing allowance, or will the IRS see this as not housing allowance eligible since he is no longer a minister?
Answer:
The 403(b) plan will be eligible for housing allowance, as long as the church designates it as such. A previous blog post provided some additional information on this issue. Excerpts and a link to the post merit revisiting:"A retired minister may receive part of his or her pension benefits as a designated parsonage allowance based on past services. Trustees of a minister’s retirement plan may designate a portion of each pension distribution as a parsonage allowance excludible under IRC § 107 (Rev. Rul. 63-156, 1963-2 C.B. 79, and Rev. Rul. 75-22, 1975-1, C.B. 49)" (IRS "Minister Audit Technique Guide" published in April 2009).
http://ministrycpa.blogspot.com/2010/09/housing-designation-of-403b-plan.html Since it may be a long time between the pastor’s discontinuance of his employment at the church and the time when he receives distributions, he must reestablish contact with its leadership and request a formal housing designation in writing. We generally recommend that the church designate 100% of all future distributions from the 403(b) plan as housing allowance. The minister must then exclude only that portion of the distributions from income for which he has met the three-part test for housing allowance. (See other postings on this blog for a refresher of these rules.)
http://ministrycpa.blogspot.com/2008/02/ministers-retirement-distributions.html
* 403(b) plans are described in the Internal Revenue Code Section 403, subparagraph b, hence the name "403(b) plans."
A pastor recently left his ministry to start a business. While in the ministry, he had a 403(b)* plan which he contributed to for over 12 years. When he retires, are the distributions from this 403(b) eligible for housing allowance, or will the IRS see this as not housing allowance eligible since he is no longer a minister?
Answer:
The 403(b) plan will be eligible for housing allowance, as long as the church designates it as such. A previous blog post provided some additional information on this issue. Excerpts and a link to the post merit revisiting:"A retired minister may receive part of his or her pension benefits as a designated parsonage allowance based on past services. Trustees of a minister’s retirement plan may designate a portion of each pension distribution as a parsonage allowance excludible under IRC § 107 (Rev. Rul. 63-156, 1963-2 C.B. 79, and Rev. Rul. 75-22, 1975-1, C.B. 49)" (IRS "Minister Audit Technique Guide" published in April 2009).
http://ministrycpa.blogspot.com/2010/09/housing-designation-of-403b-plan.html Since it may be a long time between the pastor’s discontinuance of his employment at the church and the time when he receives distributions, he must reestablish contact with its leadership and request a formal housing designation in writing. We generally recommend that the church designate 100% of all future distributions from the 403(b) plan as housing allowance. The minister must then exclude only that portion of the distributions from income for which he has met the three-part test for housing allowance. (See other postings on this blog for a refresher of these rules.)
http://ministrycpa.blogspot.com/2008/02/ministers-retirement-distributions.html
* 403(b) plans are described in the Internal Revenue Code Section 403, subparagraph b, hence the name "403(b) plans."
Employee or Independent Contractor
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Question:
A 501(c)(3) organization recently accepted the services of a married couple. This married couple does not receive compensation from the organization, but does receive donations from individuals who designate their donations to the organization on behalf of the couple. The organization controls the hours and projects of the couple. Should this couple be considered as employees or as independent contractors?
Answer:
There is strong motivation for nonprofit and for-profit organizations to treat their employees as non-employees. Typically non-employees are excluded from benefits available to employees (therefore, reducing organizations' costs). An April 21, 2009, blog post explained the IRS position on the classification of church workers. These same principles apply to all 501(c)(3) organizations:
"In most cases, non-ministerial church workers (individuals who are not performing the functions of a minister) should be classified as employees and subject to FICA withholding (and matching by the church) and income tax withholding. A common situation when independent contractor status is appropriate relates to a church employing a janitorial or other service firm to render services. On the other hand, the typical church janitor, office employee, etc. should not be treated as an independent contractor." (This quote is from one of many blog posts that readers will find by typing "Independent Contractor" in the above Search Window.)
In the question reproduced above, the married couple will most likely be considered employees per the IRS classification of an employee: "Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed." (IRS website article entitled, "Independent Contractor (Self-Employed) or Employee?"). Once the church determines the employee vs. independent contractor classification of the couple, it must address a second issue: whether the workers are performing ministerial or non-ministerial services. These classifications have implications which are also covered thoroughly in previous (other) blog posts.
* 501(c)(3) organizations are tax-exempt not-for-profits described in the Internal Revenue Code Section 501, subparagraph c, subsection 3, hence the name "501(c)(3) organization."
A 501(c)(3) organization recently accepted the services of a married couple. This married couple does not receive compensation from the organization, but does receive donations from individuals who designate their donations to the organization on behalf of the couple. The organization controls the hours and projects of the couple. Should this couple be considered as employees or as independent contractors?
Answer:
There is strong motivation for nonprofit and for-profit organizations to treat their employees as non-employees. Typically non-employees are excluded from benefits available to employees (therefore, reducing organizations' costs). An April 21, 2009, blog post explained the IRS position on the classification of church workers. These same principles apply to all 501(c)(3) organizations:
"In most cases, non-ministerial church workers (individuals who are not performing the functions of a minister) should be classified as employees and subject to FICA withholding (and matching by the church) and income tax withholding. A common situation when independent contractor status is appropriate relates to a church employing a janitorial or other service firm to render services. On the other hand, the typical church janitor, office employee, etc. should not be treated as an independent contractor." (This quote is from one of many blog posts that readers will find by typing "Independent Contractor" in the above Search Window.)
In the question reproduced above, the married couple will most likely be considered employees per the IRS classification of an employee: "Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed." (IRS website article entitled, "Independent Contractor (Self-Employed) or Employee?"). Once the church determines the employee vs. independent contractor classification of the couple, it must address a second issue: whether the workers are performing ministerial or non-ministerial services. These classifications have implications which are also covered thoroughly in previous (other) blog posts.
* 501(c)(3) organizations are tax-exempt not-for-profits described in the Internal Revenue Code Section 501, subparagraph c, subsection 3, hence the name "501(c)(3) organization."
Classifying Church Leaders as Non-Employees
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Question:
A church wishes to pay several of its key leaders a monthly amount of about $250 per individual. Is it possible to do this without them becoming employees? If so, what are the limitations to the church compensating to them?
Answer:
It must be determined whether these individuals are employees or non-employees. Details within the answer provided in an April 21, 2009, blog post will help in determining this.
Church Worker: Employee or Independent Contractor
Since the church, it is assumed, controls what the key leaders do, they will most likely be considered employees. In the rare situation that key leaders could be classified as non-employees, the church must issue Form 1099-MISC to individuals whose compensation is $600 or more. But we can only think of one example of non-employee status in the situation of compensating "key leaders" -- circuit-riding preachers of a day gone by. For the sake of information, a second issue to consider here is whether their jobs are ministerial in nature.
Non-ministerial compensation is subject to FICA and income tax withholding, and not eligible for housing allowance. Ministerial income is, by statute, not subject to mandatory withholding and eligible for housing allowance and otter benefits limited to ministers. Both classes of employee receive Form W-2.
A church wishes to pay several of its key leaders a monthly amount of about $250 per individual. Is it possible to do this without them becoming employees? If so, what are the limitations to the church compensating to them?
Answer:
It must be determined whether these individuals are employees or non-employees. Details within the answer provided in an April 21, 2009, blog post will help in determining this.
Church Worker: Employee or Independent Contractor
Since the church, it is assumed, controls what the key leaders do, they will most likely be considered employees. In the rare situation that key leaders could be classified as non-employees, the church must issue Form 1099-MISC to individuals whose compensation is $600 or more. But we can only think of one example of non-employee status in the situation of compensating "key leaders" -- circuit-riding preachers of a day gone by. For the sake of information, a second issue to consider here is whether their jobs are ministerial in nature.
Non-ministerial compensation is subject to FICA and income tax withholding, and not eligible for housing allowance. Ministerial income is, by statute, not subject to mandatory withholding and eligible for housing allowance and otter benefits limited to ministers. Both classes of employee receive Form W-2.
Update of the Driscolls' Two Houses
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On February 8th, the 11th Circuit Court of Appeals slammed the door on the ability to use housing allowances for multiple homes. In a short but definitive ruling, the court states, in essence, that "a" means "one" and that it should not be construed to be able to mean "more than one". The court relies on the consistent use of the term "home" as holding a singular connotation within the statute. Therefore, if a minister was planning on utilizing his or her housing allowance for more than one "home", it is time to make the appropriate adjustments to the 2012 tax estimates.
9 Kasım 2012 Cuma
Compensation to Volunteers
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Question:
A church has used the voluntary services of a bookkeeper and would like to gift to her a $500 gift card. Since she is not an employee of the church, is this gift taxable?
Answer:
The gift card will be treated as taxable compensation for services rendered. If she is an employee, this income will be reported on a Form W-2. If she is not an employee her income will be reported on a Form 1099-MISC (unless her annual earnings fall below $600) and will be reportable by her on Schedule C and also subject to Self-Employment tax on Schedule SE.
Volunteers who incur documented out-of-pocket expenses on behalf of a church may be reimbursed on a tax-free basis. This includes use of an automobile to travel to the church site and on other errands. The mileage reimbursement rate for such volunteers in 2012 is $.14 per mile. In December 2012, the IRS will likely announce its 2013 standard mileage rates.
A church has used the voluntary services of a bookkeeper and would like to gift to her a $500 gift card. Since she is not an employee of the church, is this gift taxable?
Answer:
The gift card will be treated as taxable compensation for services rendered. If she is an employee, this income will be reported on a Form W-2. If she is not an employee her income will be reported on a Form 1099-MISC (unless her annual earnings fall below $600) and will be reportable by her on Schedule C and also subject to Self-Employment tax on Schedule SE.
Volunteers who incur documented out-of-pocket expenses on behalf of a church may be reimbursed on a tax-free basis. This includes use of an automobile to travel to the church site and on other errands. The mileage reimbursement rate for such volunteers in 2012 is $.14 per mile. In December 2012, the IRS will likely announce its 2013 standard mileage rates.
Missionary Support from Church Acting as a Mission Agency
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Question:
A missionary is receiving partial support from donors who contribute to her home church on her behalf. How should this income be reported by the church and by the missionary?
Answer:
Because the church is not using a mission agency, rather, amounts are sent directly to the missionary, the church is considered the payer of the compensation.
A November 14, 2010, blog post explains the requirements for a church that chooses to act as a mission agency:
Church as Mission Agency
While a church can act as the mission agency, mission agencies can often provide for missionaries better than a church could. Since most mission agencies treat missionaries as their employees, they can establish retirement plans, health plans, and provide many other benefits for the missionaries that a church is unable to provide.
In the absence of a mission agency, the church is responsible to file an information return (either a Form 1099-MISC or Form W-2). The missionary is subject to income and self-employment tax on her earnings.
A missionary is receiving partial support from donors who contribute to her home church on her behalf. How should this income be reported by the church and by the missionary?
Answer:
Because the church is not using a mission agency, rather, amounts are sent directly to the missionary, the church is considered the payer of the compensation.
A November 14, 2010, blog post explains the requirements for a church that chooses to act as a mission agency:
Church as Mission Agency
While a church can act as the mission agency, mission agencies can often provide for missionaries better than a church could. Since most mission agencies treat missionaries as their employees, they can establish retirement plans, health plans, and provide many other benefits for the missionaries that a church is unable to provide.
In the absence of a mission agency, the church is responsible to file an information return (either a Form 1099-MISC or Form W-2). The missionary is subject to income and self-employment tax on her earnings.
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