Paying the preacher 2

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Paying the preacher 2

  1. 2. <ul><li>Formulating a compensation plan that is in compliance with IRS Tax Codes and Tax Efficient for the minister requires: </li></ul><ul><ul><li>Awareness of the dual tax status of ministers; </li></ul></ul><ul><ul><li>Recognizing the difference between Salary, Benefits, and Expenses; </li></ul></ul><ul><ul><li>A Commitment to reasonable compensation for ministerial service </li></ul></ul>
  2. 3. <ul><li>For Federal Income Tax purposes, an ordained minister is considered an employee of the church; </li></ul><ul><li>For FICA/Social Security purposes, the minister is consider self-employed and is responsible for quarterly estimates of 15.3% of salary & housing </li></ul>
  3. 4. <ul><li>The Costs of Ministry are those business and professional expenses connected with going the work of the minister. </li></ul><ul><li>These expenses should be budgeted as ‘Ministry Expenses’ and NOT part of the compensation. </li></ul><ul><li>Listing expense reimbursement as compensation can result in higher taxes for the pastor </li></ul>
  4. 5. <ul><li>Business and Professional Business Expenses can include Automobile/Travel, Conventions, Continuing Education, Professional Dues, Books, and Hospitality. </li></ul><ul><li>These expenses should be reimbursed using an Accountable Reimbursement Plan (ARP) rather than an “allowance plan.” </li></ul>
  5. 6. <ul><li>The cost of a minister consists of appropriate benefits, housing, and cash salary. </li></ul><ul><li>Benefits might include Social Security offset (7.65%), Insurance, Annuity/retirement, and Gifts/bonuses </li></ul><ul><li>Parsonage/Housing Allowance can be used for utilities, renters’ insurance, upkeep, etc. </li></ul>
  6. 7. <ul><li>Social Security, Insurance, FRV of the parsonage, & utilities are non-discretionary items; </li></ul><ul><li>Cash Salary is a discretionary line item that is to be used as the pastor wishes </li></ul><ul><li>Salary + Benefits = Compensation </li></ul><ul><li>Reimbursements = Church Expense </li></ul>
  7. 8. <ul><li>Pastor’s Compensation </li></ul><ul><li>Salary: </li></ul><ul><li>A. Cash ______________ </li></ul><ul><li>B. FRV ______________ </li></ul><ul><li>C. Housing ______________ </li></ul><ul><li> Allowance </li></ul><ul><li>TOTAL SALARY ______________ </li></ul>
  8. 9. <ul><li>Employee Benefits: </li></ul><ul><li>A. Social Security ______________ </li></ul><ul><li>B. Annuity/Retirement ______________ </li></ul><ul><li>C. Insurance ______________ </li></ul><ul><li>D. Gifts/Bonus ______________ </li></ul><ul><li>TOTAL Benefits ______________ </li></ul><ul><li>Benefits + Salary = Compensation </li></ul><ul><li>According to the US Chamber of Commerce, Benefits averaged 37.6% of Salary nationally. </li></ul>
  9. 10. <ul><li>Business/Professional Expense Reimbursements: </li></ul><ul><li>A. Automobile/Travel _______________ </li></ul><ul><li>B. Conventions _______________ </li></ul><ul><li>C. CE _______________ </li></ul><ul><li>D. Professional Dues _______________ </li></ul><ul><li>E. Hospitality _______________ </li></ul><ul><li>TOTAL EXPENSES _______________ </li></ul><ul><li>** Should be paid using a church-approved “Accounts Reimbursement Plan” </li></ul>
  10. 11. <ul><li>Details about Ministerial Housing Allowance can be found in IRS Publication 517 </li></ul><ul><li>With respect to use of a parsonage, the Minister is considered self-employed and must pay Social Security (FICA) tax on the FRV of the parsonage. </li></ul><ul><li>That rule would also apply to any Housing Allowance used to pay for utilities, renters’ insurance, upkeep, etc. </li></ul>
  11. 12. <ul><li>Ministers must file quarterly estimated tax payments. </li></ul><ul><li>However, the housing allowance is NOT subject to federal income tax, but it IS subject to Federal Income Tax. </li></ul><ul><li>Housing allowance must be designated in advance (i.e.: budget). It cannot be applied retroactively. However, it can be amended during the year. </li></ul>
  12. 13. <ul><li>Unlike Expense Reimbursement, the Housing Allowance does not have to be separated from the Salary check. </li></ul>
  13. 14. <ul><li>Must be formally adopted by the governing board or the church as a whole in conference. </li></ul><ul><li>Reimburses ministers for those business expenses that are substantiated with receipts and/or in writing within 60 days of expenditure. </li></ul><ul><li>Accountability should be written and kept for a minimum of 3 years </li></ul>
  14. 15. <ul><li>Survey nationally of churches with attendance of 40-125, a resident membership of 100-250, and a church budget of $70,000 - $140,000 resulted in these findings: </li></ul><ul><li>Average Salary + housing = $46,000-$62,964 </li></ul><ul><li>Average Benefits = $ 5, 850-$10,773 </li></ul><ul><li>TOTAL Compensation = $54,173 - $68,814 </li></ul><ul><li>With 5,840 churches reporting, the middle 70% of those churches reported that 36% - 58% of their budgets were used for staff compensation & benefits. </li></ul>
  15. 16. <ul><li>Matthew 22:17-21 </li></ul><ul><li>Romans 13:1-7 </li></ul><ul><li>Titus 3:1 </li></ul><ul><li>I Peter 2:13-17 </li></ul><ul><li>Romans 12:9-18 </li></ul>

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