The Metropolitan District of The Christian and Missionary Alliance

Transcription

1 The Metropolitan District of The Christian and Missionary Alliance PO Box 7060 Newark, NJ X Fax January 8, 2017 Re: Recent questions regarding pastoral status, W-2s/W-3, NJ-W-3, NYS 45, 1099-Misc, 1096, Estimating the parsonage fair rental value New 2017 W-2 reporting for health insurance premiums and HSAs New 2017 IRS Form 1094/1095 requirements for employers of 50 or more for health insurance Dear Treasurer, There have been numerous questions about pastoral status and payroll records in the last few weeks, which is different from other employees. One pastor said that they just don t know who to ask. Our office is pleased to be here to serve you. Your ministry as treasurer carries more work and responsibility than most other ministries. We know that you carry this ministry along with your work, home and other ministry responsibilities. Though many in your church do not know the long hours that you work, we do know and appreciate you and your ministry. We do not want you to be frustrated. We want you to be able to comply with the laws, and for your church to be an example of integrity before your church members and community, so that message of Christ will go forward without hindrances. Please feel free to contact me if you have questions. I know these matters are complicated. At the end of this information, there is an example of federal payroll taxes as well as NJ and NY taxes. Ministers/Pastors Defined by IRS Publication 517 page 3 At Ministers are individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination. They are given the authority to conduct religious worship, perform sacerdotal functions, and administer ordinances and sacraments according to the prescribed tenets and practices of that church or denomination. If a church or denomination ordains some ministers and licenses or commissions others, anyone licensed or commissioned must be able to perform substantially all the religious functions of an ordained minister to be treated as a minister for social security purposes. Pastoral status: All ordained and licensed pastors in the Christian & Missionary Alliance who are performing the work of a minister as defined by the IRS are considered ministers by the IRS. If the denomination ordains some and licenses others, anyone who is licensed must be able to perform all the religious functions of an ordained minister, in order to be treated as a minister for social security purposes. The CMA allows licensed ministers to perform all functions of ordained ministers. If you are unsure about your pastor s status, ask if they are a licensed pastor in the Christian & Missionary Alliance and if they are performing the functions of a minister as defined by the IRS. If the answer is yes, the person is considered a minister by the IRS. If the answer is no, the person is considered a regular employee by the IRS. IRS forms and publications are found on the IRS web site, In the pastoral paycheck, the pastor has federal income, federal tax withheld by pastoral agreement (optional), and housing allowance (optional, but highly recommended). From the church s point of 1

2 view as the employer, the pastor does Not have social security and Medicare wages. Also, social security and Medicare taxes are NOT withheld. (The pastor may make quarterly payments for federal taxes if the church does not withhold). From the pastor s point of view on his/her annual tax return, he/she may pay social security and Medicare taxes or he/she may have opted out of social security and Medicare and will not owe these taxes. Neither of these two options will affect how the treasurer handles the pastoral payroll. From the church s point of view as the employer, the pastor is an employee for federal taxes and selfemployed for social security and Medicare. This means that the pastor will have federal wages but will have NO social security and Medicare wages. This is true regardless of whether the pastor is in or has opted out of social security for his/her annual income taxes. NEW!! 2016 W-2 Reporting Requirements to include health insurance premiums and HSA amounts. High Deductible Health Plans/Health Savings Accounts (from Eddie Swansonnational office) All W-2s/W-3 must be submitted to the Social Security Administration by January 31, All 1099s/1096 must be submitted to the IRS by January 31, 2016 Alliance Benefits new High Deductible Health Plan is linked with a Health Savings Account (HSA). Benefits will bundle the health premium with the employer s contribution to an employee s HSA in a monthly billing statement. Both the health premium and the HSA contribution have special W-2 reporting requirements for Employees signed up for Medicare Part A are ineligible to contribute to an HSA. Employees that contribute to an HSA in 2016 cannot contribute to a Flexible Savings Account (FSA) unless it is HSA-compliant (dental and vision coverage only). Health savings account (HSA). An employer s contribution (including an employee s contributions through a cafeteria plan) to an employee s HSA is not subject to federal income tax withholding or social security, Medicare, or railroad retirement taxes if it is reasonable to believe at the time of the payment that the contribution will be excludable from the employee s income. You must report all employer contributions (including an employee s contributions through a cafeteria plan) to an HSA in box 12 of Form W-2 with code W. Employer contributions to an HSA that are not excludable from the income of the employee also must be reported in boxes 1, 3, and 5. See limitations below. Code W Employer contributions to a health savings account (HSA). Show any employer contributions (including amounts the employee elected to contribute using a section 125 [cafeteria] plan) to an HSA. Code DD Cost of employer-sponsored health coverage. Use this code to report the cost of employersponsored health coverage. The amount reported with code DD is not taxable. Additional reporting guidance, including information about the transitional reporting rules that apply, is available on the Affordable Care Act Tax Provisions page of IRS.gov HSA contribution limitation. The annual limitation on deductions for an individual with selfonly coverage under a high deductible health plan is $3,400. For calendar year 2016, the annual limitation on deductions for an individual with family coverage under a high deductible health plan is $6,750. 2

3 2016 High deductible health plan. For calendar year 2016, a high deductible health plan is defined as a health plan with an annual deductible that is not less than $1,300 for self-only coverage or $2,600 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,550 for self-only coverage or $13,100 for family coverage. NEW!! Form 1094/1095 Requirements (from Eddie Swanson - national office) In early 2016, reporting under the Affordable Care Act will be required from all employers offering qualified health plans. Only employers with fewer than 50 full-time equivalents (FTE) and who do not offer a qualified health plan are not required to file. Earlier this year, Alliance Benefits committed to maintaining the needed employer/participant information. The Benefits Office will create the 1094/1095 forms and provide them to each employer for distribution to all employees who have participated in the Alliance Health Plan for Alliance Benefits will also automatically file the required forms to the Internal Revenue Service (IRS) on behalf of the employer. Each employer s responsibility will be to distribute the forms to their employees by January 31, Alliance Benefits will take care of everything else. How is a pastor s salary different from another employee? A pastor is an employee for federal taxes and receives a W-2. Yet at the same time, the pastor is self employed for social security and Medicare. This means that the pastor pays both the employee and employer portions of social security and Medicare on his income taxes; it is 15.3%. (social security: employer 6.2%, employee 6.2% (There is additional Medicare tax of.9% for married filing jointly over $250,000, married filing separately over $125,000, single over $200,000, head of household with qualifying person over $200,000). Pastoral remuneration is usually divided into salary and housing allowance. The pastor pays federal taxes, social security and Medicare taxes on salary on his annual income tax return, unless he/she has opted out of social security. But during the year all the taxes are withheld under federal taxes. The pastor also pays social security and Medicare on the housing allowance on his federal tax return. But during the year all the taxes are withheld under federal taxes. The only tax break is the housing allowance, where the pastor does not pay federal taxes. Housing allowances include the costs of running the pastoral home, including rent/mortgage, utilities. CAUTION: A housing allowance must always be passed in advance of paying the pastor; a retroactive housing allowance is not valid. After the housing allowance is passed and we will assume that it seems to be a reasonable amount, the treasurer s only responsibility is to report it on the W-2 in box 14. The treasurer is not responsible for monitoring the exact pastoral housing allowance expenses; the pastor is solely responsible for calculating his/her exact housing allowance expenses when completing the annual federal tax return. For purposes of advising the pastor, it is better to estimate housing allowance slightly higher than expected costs. If the pastor does not have enough receipts to support the declared housing allowance, he/she can always report the excess housing as income and pay federal taxes on it. The reverse however is not true. If the pastor has spent more on housing than his/her church declared housing allowance, housing allowance can not be increased retroactively. The pastor will need to report the church declared housing allowance and will loose the tax advantage on the additional costs of providing housing. Housing allowance was challenged in December 2013 in a mid-western state and continues to be discussed. Any updates on court cases will be sent to your church. This is a reason why I ask for updates to church treasurer information. 3

4 How to prepare a pastor s W-2? The pastor s salary goes in box 1; housing allowance does NOT go in this box. If your pastor has had the treasurer withhold federal taxes, this amount goes in box 2. Boxes 3, 4, 5, and 6 are blank because the pastor is self employed for social security and Medicare; these boxes are only filled in for non-ministerial employees. Thus from the perspective of the employing church, the pastor has no social security/medicare wages and taxes. The housing allowance goes in box 14; it needs to be labeled housing allowance. If the treasurer has withheld money for a 403b from the pastor s pay, this amount appears on line 12a and is labeled E. (This amount reduces federal gross salary). (See IRS publication 517 p and Publication 15A p. 9). What is form W-3 and how is it prepared? The W-3 is summary sheet of the W-2s, filed with the W-2(s), whether you have one W-2 or fifty. The W-2s and W-3 that are sent to the Social Security Administration are red. (If you print it out of Quick Books, it will be black). In box 1, you would have the total of salaries for secretaries and pastors (NO housing allowance). Box 2 has the total of pastors and secretaries federal taxes withheld. Boxes 3 and 5 would only contain salary information for secretaries, janitors or other non-pastoral employees or pastors who are not performing the work of minister as defined by the IRS. Likewise, boxes 4 and 6 would contain social security and Medicare withholding information only for secretaries, janitors or other non-pastoral employees or pastors who are not performing the work of minister as defined by the IRS. Pastors have neither social security and Medicare wages nor withholding. Line 12a has any 403b deferred compensation withheld from employee salaries. (The 403b amount withheld from employee s salary reduces gross income by that amount). The totals for state information are at the bottom. Very, very important!!! The totals of the 4 quarters of 941s must equal the totals on the W-3!!! The IRS and the Social Security Administration share information and they ask why the 941s and the W-3 don t agree. You must also make sure that 4 quarters for the NJ/NY equal the year end payroll totals too What is Form 941 and how is one prepared? Form 941 reports the church payroll to the IRS and it should be filed quarterly. Line 1 has the number of employees including March 12, June 12, Sept 12, and Dec 12. Line 2 contains the quarterly total of salaries for secretaries and pastors (NO housing allowance). Box 3 has the total of pastors and secretaries federal taxes withheld. Box 4-Check only if NO wages subject to social security and Medicare and proceed to line 6. Boxes 5a and 5c Column 1 would ONLY contain wage information for administrative assistants and other non-licensed employees or pastors who are not performing the work of a minister as defined by the IRS. Likewise, boxes 5a and 5c Column 2 would ONLY contain social security and Medicare withholding for secretaries and other non-licensed employees or pastors who are not performing the work of a minister as defined by the IRS. There are several options to submit your tax liabilities. EFTPS (done on line) is the easiest payment option. Note: Employer contributions to social security are 6.2% and employee withholding is 6.2%. There is additional Medicare tax of.9% for married filing jointly over $250,000, married filing separately over $125,000, single over $200,000, head of household with qualifying person over $200,000. The state of New Jersey: State taxes: Withholding tax for pastors is optional. State withholding for administrative assistants and regular employees should be remitted to the state monthly. Beginning in 2009, there are new mandatory online filing and payment requirements. See page 6. NJ disability and unemployment: The state has temporary disability and unemployment insurance and churches can participate in their program if they choose. These cover a portion of loss of wages due to a temporary disability, up to 6 months, and in case of unemployment. Churches are exempt from these unless they choose to opt in. The enrollment time to opt in is between Dec 1 st and Jan 31 st for the current year. Also, pastors are in a category themselves and need to opt in separately from the 4

5 other employees. It is possible for the office staff/ janitors to be in disability/unemployment and the pastors not to participate. If a church participates in disability/unemployment, the church must complete Form WR30 on a quarterly basis. This form reports individual employee wages. Beginning in 2009, there are new mandatory online filing and payment requirements. See page 6. Employers Quarterly Report NJ-927: This form is completed quarterly to report state withholding. If a church participates in state disability/unemployment, this form also reports the disability and unemployment payments. Beginning in 2009, there are new mandatory online filing and payment requirements. See page 6. NJ-W-3: Just like W-2s and a W-3 are sent to the federal government, the state of NJ has similar reporting. There is a small NJ-W-3 which asks for the number of employees, the total wages and the amount of state withholding tax. The NJ-W-3 is sent to the state of New Jersey along with the copies of the W-2s for the state by January 31, Since 2013, NJ is asking that 1099s/1096 be sent with the W-2s/NJ W-3. The state of New York: State and NYC resident and non-resident taxes: Withholding tax for pastors is optional. State withholding for administrative assistants and regular employees should be remitted to the state monthly. NY disability and unemployment: The state divides employees into two categories, religious and non-religious; pastors are always considered religious workers and are not eligible to participate. For other employees, it is best to call the state yourselves to determine your obligations. Form NYS-45: These forms report state, NYC withholding and unemployment and should be completed quarterly. This form is very confusing to fill out. In the upper left hand corner, your church should only have a UI Employer registration number, if you have non-religious employees participating in unemployment. The Withholding Identification number should be the same as your federal identification number. Very Important: Part A should not be completed unless the church has non-religious employees; pastors/religious employees are not eligible for unemployment. Part B should be completed with the withholding information. Part C is very confusing. Part C(a) and (b), that is the social security number and the employee name should be completed for all four quarters. Part C (c) should only be completed if the church has non-religious employees for only those employees. Religious employees/pastors are not eligible for unemployment in this part and their income should be not be included. Part C (d) and (e), that is annual gross wages and total tax withheld, should ONLY be completed at the end of December; the form must be submitted by January 31, This should be total annual wages and total annual tax withheld. This is done in place of completing other year end payroll tax reporting or NJ W-3s as in the state of New Jersey. NY MTA Tax-Mobility Tax: This is for the NYC and the NY counties of Rockland, Nassau, Suffolk, Orange, Putnam, Dutchess and Westchester. It is a new tax in 2009 but has changed a couple times since beginning. Currently according to NYS Publication 420 page 12, payments are not considered wages for the purposes of MCTMC for types of employment treated as a trade or a business under section 1402 of the IRC and include qualified services of a minister. To obtain forms MTA-305, call For further information for other employees, call For internet access for information, forms and publications, use Form W-9 for Contractors: During the year, when a contractor comes to repair plumbing or a roof, the person should fill out a W-9 and provide the church with a certificate of liability and workers compensation insurance. The insurance will protect the church in case of accident and when the church completes its annual workers compensation audit for its insurance company, it will save the 5

6 church money in insurance premiums. The W-9 will provide the church with the contractor s social security number or federal identification number and address. At the end of the year, if the contractor has made $600 or more, the church should issue a Form The exception is attorneys; they should receive a W-9 for any amount that the church has paid them. Form 1099-Misc and Form 1096: The form 1099-Misc is completed for contractor who has been paid $600 or more. This includes honorariums for visiting speakers or pulpit supply. Box 7 is for nonemployee compensation. Form 1096 is filed with the forms 1099-Misc, whether there is one 1099 or fifty. In NJ, the state is asking that 1099s/1096 be sent with the W-2s/NJ W-3 and be filed by January 31, Housing allowances: Housing allowance was challenged in December 2013 in a mid-western state and continues to be discussed. Any updates on court cases will be sent to your church. This is a reason why I ask for updates to church treasurer information. Estimating the parsonage fair rental value: 1. Church owned parsonage: The recommended way to establish the fair rental value of a church owned parsonage is to have a realtor provide the church with a letter estimating the rental value. It is suggested that the realtor should not be from your church since the IRS would view this as a biased person. In the district office, we have used a Christian realtor from another area church to determine the rental value of our parsonages. We explained that the pastors would be paying social security and Medicare taxes on this value; thus we wanted an honest but not inflated value. He sent a letter with an estimated rental value In box 14 of the W-2, there can be one figure for parsonage allowance. Or in the case of our office, we have 3 figures in box 14, fair rental value parsonage, utilities, and parsonage allowance (cash). Part of the pastor s income can also be designated as parsonage allowance and the pastor can receive a cash parsonage allowance in addition to the church provided parsonage. The excludable housing allowance is the lowest of these four factors: 1. Reasonable Compensation, 2. The amount used from current ministerial income to provide the home. 3. The amount officially designated by the employer or 4. The fair rental value of the home including utilities and furnishings. 2. Church rented parsonage: In this situation the church rents the parsonage. There is an actual rental value and can be labeled rental value parsonage in box 14 of the W-2. Part of the pastor s income can be designated as parsonage allowance and the pastor can receive a cash parsonage allowance in addition to the church provided parsonage. The excludable housing allowance is the lowest of these four factors: 1. Reasonable Compensation, 2. The amount used from current ministerial income to provide the home. 3. The amount officially designated by the employer or 4. The fair rental value of the home including utilities and furnishings. 3. Housing allowance for a pastor owning his own home. Every year, the pastor should have input into the part of his income that is designated housing allowance. This amount should seem fairly reasonable to the treasurer and board. The pastor can include many items in his housing allowance but there is a limitation. The amount claimed for the mortgage can be no more than the fair rental value of the home, including furnishing and appurtenances such as a garage plus the cost of utilites. For most, this is not a problem. But, for instance, if a pastor has a very high mortgage intending to pay it off quickly, he will not be able to claim the costs above the fair rental value as housing allowance. The pastor should also consult with a realtor in determining the fair rental value, just like the church example above. The treasurer may explain this information to the pastor but it is the pastor s responsibility to implement. The treasurer holds no responsibility to check on the pastor s taxes. If the pastor does not have all the expenses/receipts to account for his/her entire housing allowance, it is the pastor s responsibility to report that excess amount as salary on his/her annual taxes. 6

7 4. Housing allowance for a pastor who rents his home: The pastor should have input into the part of his income that is designated housing allowance. This amount should seem fairly reasonable to the treasurer and board. The pastor can include other items in his housing allowance and he can include the actual rent paid. The excludable housing allowance is the lowest of these four factors: 1. Reasonable Compensation, 2. The amount used from current ministerial income to provide the home. 3. The amount officially designated by the employer or 4. The fair rental value of the home including utilities and furnishings. If you have any questions, please call. May God richly bless in this important ministry that you have to your church. Sincerely, Bonnie VanOrnum Financial & Legal Manager Example: Jesus is Lord Alliance Church has three employees: Rev Parsons Pastor is the senior pastor and is both licensed and ordained by the CMA and he does work of minister as defined by the IRS. He does not want any federal taxes withheld in each pay check; he makes quarterly payments directly to the IRS. He wrote $0 on line 6 of his W-4. He receives a salary and a housing allowance; he owns his own home. Mr Robert Youth is the youth pastor. He graduated from seminary, and was hired by the church in April. He is licensed by the CMA and is working towards his ordination and does the work of a minister as defined by the IRS. He is very happy that the treasurer is willing to withhold federal taxes and has written on line 6 of his W-4 to withhold $525 from each pay check (he is paid monthly). He receives a salary and a housing allowance; he rents an apartment Miss Opal Office is the secretary and is not licensed by the CMA. She is single and has elected to have 1 exemption taken from her pay. She is salaried and only started working for the church in July. For NYS purposes, this example did not determine the church s obligation to unemployment and disability. If you live in NY, you need to call the state to make this determination concerning unemployment and disability and MTA tax. This example only reflects how to do taxes and should not be interpreted as a suggested amount to pay. Likewise, the example amounts used for state taxes are only meant as examples of how to complete the taxes, not actual state tax amounts. There are tax tables to assist with this. Parsons Robert Opal Annual Salary $25,000 $20,000 ($15,000-9 mo) $30,000 ($15,000-6 mo) Quarterly Salary $6,250 $5,000 $7,500 Annual Housing Allowance $26,000 $21,000 ($15,750-9 mo) none Quarterly Housing Allowance $6,500 $5,250 none Annual Federal taxes withheld $0 $6,300 ($4,725-9 mo) Exemption: 1 Quarterly Federal taxes withheld $0 $1,575 Exemption: 1 State Annual Withholding $0 $300 ($225-9 mo) Exemption: 1 State Quarterly Withholding $0 $25 Exemption: 1 For regular employees like Opal: For the employee and employer portions of social security tax, both are 6.2%. (The employee portion has increased over last year; this 6.2% was reinstated after 2 years of a lower amount. For the employer and employer portions of Medicare; both continue to be 1.45%. 7