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Employee or Independent Contractor
• Who is an employee and who is not?• You can ask the IRS, if you wish• Typical church employees
– pastors– office and facilities staff
• Typical church independent contractors– janitorial and snow removal service
companies– accounting/bookkeeping service firms
According to the IRS, who is a minister? And, what difference
does it make?• A minister is an individual who is a
“duly ordained, commissioned, or licensed minister of a church” [and other 501(c)(3) religious organizations] who performs services “in the exercise of his ministry.”
• Dual Status
It makes a big difference to be both an employee and a self-employed
person!• Eligible for all employee benefit
provisions of the Internal Revenue Code, the most common are:– Health care plans– Retirement plans
• 7.65% (5.65% in 2011+) FICA tax withholding replaced with personal responsibility for 15.3% (13.3% in 2011+) SE tax
• Federal and state income tax withholding optional
• Form 1040-ES
Assumptions
Typical Minister’s Annual Form W-2
$35,000 Cash salary 30,000 Housing allowance designation (6,000) Minister’s 403(b) plan elective deferral (5,000) Pastor’s optional federal and state income tax withholding$54,000 Net amount paid to minister
Assumptions
Typical Minister’s Annual Form W-2
$35,000 Cash salary 30,000 Housing allowance designation (6,000) Minister’s 403(b) plan elective deferral (5,000) Pastor’s optional federal and state income tax withholding$54,000 Net amount paid to minister
Typical Minister’s Annual Form W-2
$35,000 Cash salary 30,000 Housing allowance designation (6,000) Minister’s 403(b) plan elective deferral (5,000) Pastor’s optional federal & state tax withholding$54,000 Net amount paid to minister
• Accountable plan for professional expense reimbursements• Health insurance premiums and other qualified health benefits• Employer contributions to 403(b) plan
Irrelevant items
Housing Allowance
• Principal residence• Three-part test
– Actual expenses– Designated amount– Fair rental value, plus actual cost of
utilities• Partial reduction of deductible
expenses
Retirement Plan Options
• Internal Revenue Code Section 403(b) plans
• Traditional Individual Retirement Accounts (IRAs)
• Roth IRAs (and Roth 403(b) plans)
Health Benefits for Ministers
• Health insurance• Health Reimbursement Arrangements
(HRAs)• Health Savings Accounts (HSAs)
Professional Expenses
• Travel—car (@ $.555/mile), airplane• Lodging and meals• Materials• Entertainment
Opting Out of Social Security
• 15.3% (13.3% in 2011+) SECA; not 7.65% (5.65% in 2011+) FICA
• Requirements• Caution!
For more information...
• Non-profit organization accounting principles
• Compensation practices• Benevolent activities• Contributions issues• Foreign missions support• Ministerial tax planning
http://www.ministrycpa.blogspot.com/
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Visit our Q&A blog at www.ministrycpa.blogspot.com
611 O’Connell StreetWatertown, WI 53094
(920) 261-7012
Member: American and Wisconsin Institutes of Certified Public Accountants