Must Churches File for 501(c)(3) Tax Exemption?
The Internal Revenue Code section 508(c) sets out that churches are automatically recognized as tax-exempt under 501(c)(3), and the IRS does not require churches to apply for tax-exempt status if they meet the following criteria: a distinct legal existence; a recognized creed and form of worship; a definite and distinct ecclesiastical government; a formal code…
Don’t let your Employee Handbook collect dust
An employee handbook can be the foundation of employee performance or it can be a ticking time bomb that confuses employees. It all depends on how well it’s written and put to use. Churches face many hazards if they try to whip up handbooks on the fly. Too often, handbooks are inconsistent with the way…
Housing Allowance for Clergy Couples
Clergy couples are limited to the equivalent of one housing allowance between the two incomes, providing they live in the same location. In this instance, clergy need to be mindful of the amount requested by each spouse in the annual housing allowance resolution. Generally, any expense to provide or maintain the home can be used to justify…
Important Fringe Benefits for Ministers
A fringe benefit is any cash, property, or service that clergy employees receive from a congregation in addition to salary. All fringe benefits are taxable income to employees unless specifically exempted by the Internal Revenue Code. Many fringe benefits can be provided by a congregation to clergy without any dollar limitation (health insurance is an example), while other fringe benefits…
Contributions for Short-Term Mission Trips
It is a common practice for churches to raise funds to send volunteers on short-term mission trips. The funds are often raised by a participant preferenced for his or her own trip expenses, as opposed to raising the funds for the group of volunteers as a whole. Tax-deductible contributions for short-term missionary trips must be made “to or for…
Student Loan Forgiveness Creates New Tax Trap
There’s a new student loan repayment program that forgives some student loan debt if other payments are made. This new debt forgiveness is creating a tax surprise for the unsuspecting student. Here is what you need to know. The debt forgiveness program dilemma to combat the hardship of high student loan debt, a popular new…
New Changes to the Employee Business Expense Deduction
Prior to the Tax Cuts and Jobs Act, which went into effect, January 1, 2018, unreimbursed ministry-related expenses were generally deductible on the minister’s individual tax return as a miscellaneous itemized deduction (Schedule A) if they exceeded 2% of an individual’s AGI. Starting in 2018, these deductions will be eliminated for tax years through 2025. This includes unreimbursed…
How Does the IRS Contacts Taxpayers
Everyone should know how the IRS contacts taxpayers. This will help people avoid becoming a victim of scammers who pretend to be from the IRS with a goal of stealing personal information. Here are some facts about how the IRS communicates with taxpayers: The IRS doesn’t normally initiate contact with taxpayers by email. The agency…
Ministers Defined by the IRS
When a church hires an employee, one of the initial decisions that must be made is whether to treat the worker as clergy, non-clergy employee or contractor. This decision may seem insignificant, but it has huge implications when it comes to payroll. Ministers have what is commonly referred to as “dual tax status.” For federal…
Is a Pastor’s Retirement Gift Taxable?
Federal tax law requires all forms of compensation to be reported as taxable income unless specifically excluded by law. Gifts are one such exclusion. The question, then, is whether retirement gifts are taxable compensation for services rendered or tax-free gifts. This answer is not always clear. In a series of cases in the early 1950s,…
