CLERGY TAX & BENEFITS SEMINAR. Insight Into the World of Clergy Taxes and Benefits

Transcription

1 CLERGY TAX & BENEFITS SEMINAR Insight Into the World of Clergy Taxes and Benefits

2 AGENDA Welcome and Prayer Introductions & Overview Clergy Compensation Clergy Benefits Other Tax Matters Q&A 2

3 Clergy Tax & Benefits Seminar Workshop Leaders Rev. Paul Bauernfeind, District Superintendent, Amarillo District Rev. Don Boren, District Superintendent, Abilene District Rev. Dave Andersen, CPA, Director of Stewardship & Conference Treasurer Jan Roberts, Conference Benefits Officer 3

4 Employee Status & Reporting Clergy Ordained or licensed by UMC Not subject to income tax, Social Security and Medicare withholding Dual-status employee Employee for income tax purposes Self-employed for social security (SE) tax purposes Lay Employee Not ordained or licensed Subject to income tax, Social Security and Medicare withholding Employer must match Security and Medicare taxes 4

5 Compensation Form 5

6 Compensation Form 6

7 Benefits Eligibility 7

8 Pastor Compensation 8

9 Cash Allowances 9

10 Professional Expenses Non-accountable Plan - Allowances Cash allowance paid without adequate accounting Allowances (except housing) must be included in taxable wages on W-2 Expenses deductible for income tax purposes only if you itemize deductions on Schedule A; deductible on Schedule SE 10

11 Cash Allowances 11

12 Payroll Deductions 12

13 Flexible Spending Plan Must comply with Section 125 of IRS code Medical Reimbursement (MRA) Ceridian Debit Card $2,500 limit in 2013 Dependent Care Account (DCA) 13

14 UMPIP Contribution Church must be a Plan Sponsor Lay employees eligible Options for retirement distributions Hardship Loans 14

15 403(b) Contributions IRS Limits 15

16 Basis for Appointment 16

17 Accountable Reimbursements 17

18 Professional Expenses Accountable Plan IRS Requirements: Business connection Adequate accounting Return excess reimbursement Church must adopt a reimbursement plan If criteria met, no tax effects to employee Unreimbursed expenses deductible on Schedule A and Schedule SE 18

19 Accountable Reimbursement Policy 19

20 Documentation 20

21 Professional Expenses Accountable Plan IRS Requirements: Business connection Adequate accounting Return excess reimbursement Church must adopt a reimbursement plan If criteria met, no tax effects to employee Unreimbursed expenses deductible on Schedule A and Schedule SE Non-accountable Plan - Allowances Cash allowance paid without adequate accounting Allowances (except housing) must be included in taxable wages on W-2 Expenses deductible for income tax purposes only if you itemize deductions on Schedule A; deductible on Schedule SE 21

22 Professional Expenses 22

23 Housing Exclusion 23

24 Housing Exclusion Even if you live in a parsonage you can exclude some housing-related expenses from your taxable income Furnishings Supplies Maintenance Clergy is responsible for substantiation to IRS; receipts do not have to be turned into church 24

25 Insurance Benefits 25

26 Conference Health Insurance Blue Cross PPO B1000 Blue Cross CDHP Medco United Behavioral Health Vision Service Plan 26

27 Wellness Benefits Health Quotient (HQ) Blueprint for Wellness (Quest Labs) Virgin Health Miles 27

28 Housing Allowance 28

29 Housing Allowance 29

30 Housing Exclusion & Housing Allowance Rental value of parsonage is excluded from taxable income but taxable for SE tax Housing allowance/exclusion is excluded from taxable income to the lesser of: Amount actually spent Amount designated as housing allowance/exclusion Fair rental value of home, including furnishings, utilities, maintenance, etc. Clergy is responsible for substantiation to IRS 30

31 Taxation of Housing Exclusion & Housing Allowance Housing Exclusion (parsonage provided) and Housing Allowance (no parsonage provided) are not taxable for income tax purposes (subject to limitations) but are taxable for Self-Employment Tax purposes. 31

32 Pension Benefits 32

33 Comprehensive Protection Plan (CPP) Death Benefit Active Clergy, spouse & children Retired Clergy & spouse Disability Benefit 33

34 Clergy Retirement Security Plan (CRSP) Defined Benefit 1.25% X DAC X # of years Defined Contribution 3% of cash salary + housing 34

35 Taxable Income Income subject to Income Tax: Salaries and fees for ministerial services (Reported to you on Form W-2) Offerings received for marriages, baptisms, funerals, etc. (Reported on Schedule C) Any amount church pays toward your income tax or SE tax (other than withholdings) Excluded from taxable income: Fair rental value of parsonage provided to you, or housing allowance/exclusion paid to you 35

36 Year-End Tax Reporting 36

37 What to Report on W-2 Compensation (Line 4) Minus housing exclusion allowance (Line 14) Minus Flexible Spending Plan contributions (Line 6) Minus 403(b) contributions (Line 7 or 8 if tax deferred) Plus non-accountable allowances (except housing exclusion) Equals salary to be reported in Box 1, Form W-2 37

38 W-2 Reporting All Cash Allowances except the Housing Exclusion are Taxable Wages 38

39 W-2 Reporting Housing Exclusion and Housing Allowance should be reported in Box 14 with description Housing Allowance 39

40 Payroll Deductions for Tax-free benefits should be excluded from taxable wages reported in Box 1 W-2 Reporting 40

41 W-2 Reporting Elective Deferrals to Sec. 403(b) plan are reported in Box 12 with a code E 41

42 W-2 Reporting Full-time pastors in active status should have the box Retirement Plan checked on their W-2 42

43 Net Earnings from Self-Employment Income subject to Self-Employment Tax: Salaries and fees for ministerial services (Reported to you on Form W-2) Offerings received for marriages, baptisms, funerals, etc. (Reported on Schedule C) Fair rental value of parsonage provided to you, or housing allowance/exclusion paid to you Any amount church pays toward your income tax or SE tax (other than withholdings) 43

44 Self-Employment Tax 44

45 Self-Employment Tax W-2 wages, less unreimbursed expenses, reported on line 2 of Schedule SE 45

46 Profit or Loss from Business Schedule C only used for non-employee revenue and expenses, i.e. honoraria from weddings, funerals, speaking/preaching, etc. 46

47 Professional Expenses Unreimbursed expenses flow from Form 2106 to Schedule SE. 47

48 Professional Expenses Unreimbursed expenses flow from Form 2106 to Schedule A. They are deductible only to the extent they exceed 2% of AGI and you can itemize deductions ($11,900 MFJ) 48

49 Withholding Clergy are not subject to withholding for income tax or social security taxes. However, clergy can elect to voluntarily withhold income taxes (which can be used to pay income and self-employment taxes) from their pay checks. 49

50 W-2 Reporting Amounts voluntarily withheld should be reported in Box 2 50

51 Estimated Tax Payments In addition to, or in lieu of, voluntary withholding, clergy can make quarterly estimated tax payments. You can be subject to penalties and interest if you do not pay in enough tax throughout the year. 51

52 Estimated Tax Payments Estimated tax payments are entered on page 2 of Form

53 Preparing Your Tax Return 80% of Americans file electronically If AGI is <$57,001 you can use free software to prepare and e-file your tax return ( Due date: April 17, 2012 You can get an automatic 6-month extension (Form 4868) but this does not extend the due date for paying taxes 53

54 Preparing Your Tax Return Personal and dependent exemptions = $3,800 Standard deduction = $11,900 MFJ; $5,950 Single Earned income tax credit (increases with family size) Maximum income = $50,270 Maximum credit = $5,891 54

55 Preparing Your Tax Return If you itemize Sales tax is deductible you can use the table amount (+ sales tax on purchase of car or boat) or keep your records All cash charitable deductions must be supported by check or statement; don t forget non-cash donations Mortgage interest and real estate taxes are deductible even if you have a housing allowance 55

56 Preparing Your Tax Return If you itemize Medical expenses must exceed 7.5% of AGI Miscellaneous itemized deductions: Tax preparation fees Safe deposit box rental Other investment expenses Unreimbursed employee business expenses Deductible only to the extent these are greater than 2% of AGI 56

57 Other Information Standard Mileage Rates 2011 & cents per mile for business 23 cents per mile for medical or moving 14 cents per mile for charity 57

58 Payroll Taxes 58

59 Q&A 59

60 Resources Publication 517 Social Security and Other Information for Members of the Clergy and Other Religious Workers Worth s Income Tax Guide for Ministers 60