W-2 & Year-End Reporting for Local Churches. ~Emily Graber, Senior Staff Accountant, Iowa Annual Conference of the UMC

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1 W-2 & Year-End Reporting for Local Churches ~Emily Graber, Senior Staff Accountant, Iowa Annual Conference of the UMC

2 2016 W-2 Sample

3 2016 W-2 Preparation Box 1 Wages should include total pay for the year, including any Housing Compensation (per Form I, Box 3) & the taxable cost of group-term life insurance over $50k (Box 12, Code C), less your Housing Exclusion (per Form I, Box 4) and certain elective deferrals, such as to the United Methodist Personal Investment Plan (UMPIP). If any nonaccountable travel allowances are given, the allowance should be included in taxable wages. All accountable travel reimbursements can be excluded from W-2 wages.

4 W-2, Box 1 Formula = 2016 Form I, Box 1 Cash Compensation + Box 3 Housing Compensation Box 4 Housing Exclusion

5 2016 W-2 Preparation Box 2 Federal taxes withheld from paycheck should be $0 unless clergy elect for optional withholding through their church. Boxes 3-9 & 11 All of these boxes should be blank. Clergy are not subject to Social Security or Medicare until they file their personal returns and report selfemployment taxes.

6 2016 W-2 Preparation Box 10 Dependent care benefits would be blank unless the clergy elect to deduct from wages for dependent care costs through the cafeteria/flex plan.

7 2016 W-2 Preparation Box 12 This box is used for any information specified by the IRS that does not have its own box. There are codes from A-EE but the most common that could be used for clergy are: Code C reports any taxable cost of group-term life insurance over $50,000. Go to the link at the end of this presentation for a helpful calculator on our website. This amount needs to be added back to Box 1 Wages Code E is used for any voluntary, pre-tax, salary reduction contributions to the UMPIP, which is a 403(b) plan. Post-tax salary reductions are NOT disclosed in this box. Code W is used for any employer contributions made to a health savings account. You can get this number from you pastor s annual H.S.A. statement or from Linda Remster in HR at the Conference. This would include any employee H.S.A. contributions as long as they were made through the Conference s salary reduction plan.

8 2016 W-2 Preparation Box 12 Common Question Code W should be used to disclose H.S.A. contributions. If your clergy is participating in the H.R.A. plan then that deduction is NOT included here. Code DD Cost of Employer-sponsored health coverage. This is NOT required to be disclosed for any churches issuing fewer than 250 W-2 s.

9 2016 W-2 Preparation Box 13 Retirement plan box should be checked for all clergy unless they have elected NOT to have contributions made to the UMPIP on their behalf.

10 2016 W-2 Preparation Box 14 The Other box should include information on clergy housing. Regardless of if clergy own or rent their home or live in a church parsonage, you need to disclose the approved amount shown in Box 4 on their Form I for 2016 as a Parsonage Allowance. If clergy own or rent their home, this amount may be excluded from clergy income to the extent it is used to pay expenses in providing a home, including rent, mortgage interest, utilities, repairs, furnishings, etc. If clergy live in a church parsonage, the fair rental value of the parsonage need not be included on the W-2. However, the clergy should maintain some documentation for this amount because it needs to be added to their W-2, Box 1 Wages to determine their SE taxable wages when filing their personal returns.

11 2016 W-2 Preparation

12 2016 W-2 Preparation Parsonage Allowance Notes If clergy served for only part or half of the year with your congregation, their parsonage allowance needs to be pro rated accordingly. If clergy are a multiple point charge, usually only one church W-2 shows the entire parsonage allowance. If more than one church wants to include it on their W-2, then it needs to be pro rated accordingly. If clergy choose to live in their own home when a parsonage is available, they can still elect a parsonage allowance. The amount on Box 4 of their Form I would still need to be approved at the charge conference.

13 2016 W-2 Preparation Box 15 State wages should agree with Box 1 Federal Wages Box 16 State tax information generally will be $0 unless optional withholding is set up through the church. Box Generally, these boxes will be left blank as Iowa does not allow local income tax to be withheld. The local school district tax is collected when taxes are filed based on residency so would not be withheld from clergy wages.

14 2016 W-2 Special Considerations All individuals serving as clergy regardless of part-time or full-time status and regardless of if they are ordained, commissioned or licensed clergy should be receiving a W-2 for their services. Only ordained, commissioned or licensed clergy qualify as clergy for tax purposes. Churches should still disclose their housing allowance on their W-2, but the individual would not be considered a clergy for tax purposes. You would not reduce their taxable wages by the housing allowance.

15 2016 W-2 Special Considerations: Printing W-2 s There is an informational copy of this form at This form is provided for informational purposes only. Copy A appears in red, similar to the official IRS form. Do not file copy A downloaded from this website with the SSA. The official printed version of this IRS form is scannable, but the online version of it, printed from the IRS website, is not. A penalty may be imposed for filing forms that can t be scanned. See the penalties section in the current General Instructions for Forms W- 2 and W-3 for more information. To order official IRS forms, call TAX-FORM ( ) or and the IRS will mail you the scannable forms and other products. You may file Forms W-2 and W-3 electronically on the SSA s website at You can create fill-in versions of Forms W-2 and W-3 for filing with SSA. You may also print out copies for filing with state or local governments, distribution to your employees, and for your records.

16 Other Year End Reporting

17 Other Year End Reporting Form 1099-MISC should be used for all independent contractors paid >$600 per year Examples: Church Secretary, Organist, Musician, Janitor, Lawn Care, Snow Removal Depending on the agreement with the church, this relationship can be employee/employer Amount paid should go in Box 7, Nonemployee Compensation Rent paid during the year >$600 should go in Box 1.

18 Other Year End Reporting Form 990 & 990-EZ: This form does NOT need to be filed for any church or churchaffiliated organization. Sometimes others may request a copy of this form. You should be able to indicate that churches are exempt from being required to file this tax form.

19 Other Year End Reporting In accordance with the Affordable Care Act, all health insurance providers will be providing their participants with a Form 1095-B verifying the months you were covered and all individuals covered under the plan. This form will be mailed to you by Wellmark if you are covered under the Conference plan. It will be available to download from the Wellmark website by 1/31/17.

20 Other Year End Reporting Wellmark website: After you login to the website with your personal information, you will need to move your mouse over the My Account tab on the top-right. From there a drop-down menu should pop up and you will need to click on My Tax Information. Once the next site loads, you will see a box on the right titled My Tax Information with buttons to View or Download this form. You will be able to print or save the document to keep with your tax documents and give to your tax preparer.

21 Small Business Health Care Tax Credit Does Your Church Qualify? For 2010 to 2013 the Small Business Health Care Tax Credit program allowed small nonprofit organizations like churches to recover up to 25% of their expenditures on health insurance. Many churches across the country have filed for the credits and received thousands of dollars. If you filed a Form 990-T for 2013 by May 15, 2014 and did not apply for the credit, your church could still amend their return within 3 years (May 15, 2017).

22 Small Business Health Care Tax Credit For 2014 and forward, the following changes were made to the credit: Churches generally must have enrolled in a qualified health plan (QHP) through their designated SHOP Marketplace. However, churches located in the following counties for all or part of 2014 and forward may claim the credit under the pre-tax year 2014 rules, as indicated above: Adair, Adams, Appanoose, Audubon, Benton, Black Hawk, Boone, Bremer, Buchanan, Buena Vista, Butler, Calhoun, Carroll, Cass, Cedar, Cerro Gordo, Cherokee, Chickasaw, Clarke, Clinton, Crawford, Dallas, Davis, Decatur, Delaware, Des Moines, Dubuque, Floyd, Franklin, Fremont, Greene, Grundy, Guthrie, Hamilton, Hancock, Hardin, Harrison, Henry, Humboldt, Iowa, Jackson, Jasper, Jefferson, Johnson, Jones, Keokuk, Kossuth, Lee, Linn, Louisa, Lucas, Madison, Mahaska, Marion, Marshall, Mills, Mitchell, Monona, Monroe, Montgomery, Muscatine, Page, Palo Alto, Pocahontas, Polk, Pottawattamie, Poweshiek, Ringgold, Sac, Scott, Shelby, Story, Tama, Taylor, Union, Van Buren, Wapello, Warren, Washington, Wayne, Webster, Winnebago, Worth, and Wright counties. The credit increases from 25% to 35% of employer premiums paid. A church may claim the credit for no more than two-consecutive taxable years, beginning with or in 2014.

23 Small Business Health Care Tax Credit

24 Resources GCFA Tax Packet: Iowa Conference Treasurer s Notes: Iowa Conference Clergy Tax Information: Iowa Conference Taxable Value of Group Life Insurance Calculator 2016: e_value_group_term_life_insurance_2016.htm IRS: IRS Small Business Health Care Credit Q&A: Credit:-Questions-and-Answers

25 Questions??? Contact Emily Graber, Senior Staff Accountant at the Conference at: (515) Benefits & Direct Bill, HR Joni Mardesen, (515) Linda Remster, (515)