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Church and Christian Ministry Compensation Concepts. B y Corey A. Pfaffe, CPA, PhD, Spring 2010. 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

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Church and christian ministry compensation concepts l.jpg

Church and Christian Ministry CompensationConcepts

B y Corey A. Pfaffe, CPA, PhD, Spring 2010


Employee or independent contractor l.jpg
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 l.jpg
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 l.jpg
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% FICA tax withholding replaced with personal responsibility for 15.3% SE tax

  • Federal and state income tax withholding optional

  • Form 1040-ES


Typical minister s annual form w 2 l.jpg
Typical Minister’s Annual Form W-2 self-employed person!

Assumptions

$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 26 l.jpg
Typical Minister’s Annual Form W-2 self-employed person!

Assumptions

$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 27 l.jpg
Typical Minister’s Annual Form W-2 self-employed person!

$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 l.jpg
Housing Allowance self-employed person!

  • 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 l.jpg
Retirement Plan Options self-employed person!

  • Internal Revenue Code Section 403(b) plans

  • Traditional Individual Retirement Accounts (IRAs)

  • Roth IRAs (and Roth 403(b) plans)


Health benefits for ministers l.jpg
Health Benefits for Ministers self-employed person!

  • Health insurance

  • Health Reimbursement Arrangements (HRAs)

  • Health Savings Accounts (HSAs)


Professional expenses l.jpg
Professional Expenses self-employed person!

  • Travel—car, airplane

  • Lodging and meals

  • Materials

  • Entertainment


Opting out of social security l.jpg
Opting Out of Social Security self-employed person!

  • 15.3% SECA; not 7.65% FICA

  • Requirements

  • Caution!


For more information l.jpg
For more information... self-employed person!

  • 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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