Budget and staff questions
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God’s Way – Stewardship. Budget and Staff Questions. Questions on Staff Issues. Housing Allowance for ministers How does it really work? W ho qualifies for it? Church Staff benefits Any suggestions for retirement plans for full time staff? Disability Benefits.

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Budget and Staff Questions

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God’s Way – Stewardship

Budget and Staff Questions

Questions on Staff Issues

  • Housing Allowance for ministers

    • How does it really work?

    • Who qualifies for it?

  • Church Staff benefits

  • Any suggestions for retirement plans for full time staff?

  • Disability Benefits

The Old Way — “The Package”

Package approach dangers:

  • A lump sum is misleading

  • Staff may pay unnecessary taxes

  • Staff person may choose cash over insurance and retirement protection

  • Church may incur a financial burden

“We’ll pay you a lump sum of $$ and you can divide it any way you want.”

Special Tax Rules for Ministers

(Page 5)

  • Who is a minister for tax purposes?

  • How are ministers different fortax purposes?

  • Is a minister employed or self-employed?

Who Is a Ministerfor Tax Purposes?

  • The IRS answer has nothing to dowith theology

  • Three important tax court cases:

    • Wingo — 1987

    • Knight — 1989

    • Reeder — 1993

Determining a“Minister for Tax Purposes”

  • Is the person ordained, licensedor commissioned?

  • Does the person administer ordinances?

  • Does the person conductreligious worship?

  • Does the person have management responsibilities in the church?

  • Is the person considered to be a religious leader by the church?

How Ministers AreDifferent for Tax Purposes

  • Eligibility for housing allowance

  • Self-employment status for Social Security

  • Exemption of wages from federal income tax withholding

  • Use of quarterly estimated tax payments or voluntary withholding

  • Possible exemption fromself-employment tax

Employee or Self-employed?

U.S. Tax Court (1994) seven-factor test:

  • The degree of control the employerhas over the details of the work

  • Which party invests in the facilitiesused for the work

  • The opportunity the worker has forprofit or loss

Employee or Self-employed?

U.S. Tax Court (1994) seven-factor test:

  • Whether the employer has the right to discharge the worker

  • Whether the work is part of the employer’s regular business

  • The permanency of the relationship

  • The relationship the parties think theyare creating

Questions on Staff Issues

  • Housing Allowance for ministers

    • How does it really work?

    • Who qualifies for it?

  • Church Staff benefits

  • Any suggestions for retirement plans for full time staff?

  • Disability Benefits

Determine the Needs

(Pages 6–7)

Identify the categories of financial support

  • Ministry-related expenses

  • Protection benefits

  • Personal income

Establish Written Financial Support Policies

(Pages 8–9)

Policies should cover at least four areas:

  • Ministry-related expenses

  • Employee benefits

  • Personal income

  • Other personnel policies

Provide for Ministry-Related Expenses

(Pages 10–12)

  • Budget adequately for expenses

  • Avoid payment of unnecessary taxes

  • Establish an AccountableReimbursement Plan

Church Ministry-Related Expenses

(Page 10)

  • Vehicle expenses

  • Work-related meetings,workshops, conferences

  • Ministry expenses

  • Continuing education

  • Hospitality expenses (policy regarding expenditures)

Key Points to an Accountable Reimbursement Plan

(Pages 11–12)

  • The expense must have abusiness purpose

  • Adequate substantiation of business expenses is required

  • Written record stating amount, date, location and business purpose

  • Receipts required for expenses over $75

Key Points to an Accountable Reimbursement Plan

(Pages 11–12)

  • Expenses must be substantiated within 60 days

  • Excess advances must be returned within 120 days

  • Unused money cannot be given to an employee as income or bonus

  • Sample monthly expense report (page 10)

Key Points to an Accountable Reimbursement Plan

(Pages 11–12)

  • Church reimburses business expenses from budgeted church funds

  • Caution: cannot be funded from salary

  • Sample reimbursement policy (page 12)

  • Employee issues when writing off business expenses

Employee Issues When Writing Off Business Expenses

  • Can only write off what is above 2% of adjusted gross income

  • Must have enough expenses to itemize and be above the standard deduction of $10,300

  • Minister must follow the “Deason Rule” and must reduce expenses by % of income that includes housing allowance

Deason Rule

Salary + housing total $40,000

Non-taxable housing $10,000

% of nondeductible $10,000/$40,000 = 25%

Assume eligible business expenses = $4,000

Eligible expenses of $4,000reduced by 25% = $3,000(then reduced by 2% of adjusted income)

Provide Employee Benefits

(Pages 13–14)

  • Medical, life and disability coverage

  • Retirement plan contributions

  • Social Security assistance

Providing a Benefits Plan for Ministers and Church Employees

  • Demonstrates obedience tobiblical teaching

  • Saves taxes

  • Provides protection for the church

  • Extends employee service

Life, Medical and Disability Coverage: Personal and Group

  • Term life insurance

  • Medical coverage

    • Eight PPO plan options

    • Includes prescription drug coverage

    • HSA-qualified plan available

  • Long and short-term disability coverage

  • Dental plans

  • Personal accident coverage

  • Long-term care education and insurance

Questions on Staff Issues

  • Housing Allowance for ministers

    • How does it really work?

    • Who qualifies for it?

  • Church Staff benefits

  • Any suggestions for retirement plans for full time staff?

  • Disability Benefits

The Church Retirement Plan

  • A 403(b) tax-sheltered retirement plan

  • For all Southern Baptist church employees who receive taxable income

The Church Retirement Plan — Special Features

(Page 14)

  • Contribution options

  • Tax advantages

  • Family protection

  • Matching contributions

  • Investment opportunities

The Church Retirement Plan —Tax Advantages

  • Employer contributions not subject tocurrent income taxes

  • Participant contributions not subject to current income taxes

  • Investment fund earnings not subject to current taxes

The Church Retirement Plan —Tax Advantages

  • Retired ministers allowed to designate benefits as a tax-free housing allowance

  • Contributions by ordained ministers not subject to current Social Security taxes

  • Higher contribution limits than an IRA

The Church Retirement Plan

Benefits of state convention contributions:

  • Protection benefits

    • Disability benefits up to$500 per month

    • Survivor benefit up to $100,000

  • Retirement benefits

    • Contributions up to $17.50 per month

The Church Retirement Plan

State Convention Contributions


Matching RetirementContributions

$1 for every $3 contributed

Maximum $17.50

Your Monthly Contribution Level


Protection Benefits

Disability Income Benefit

Survivor Benefit


Investment Risk and Return

You should carefully consider the investment objectives, risks, charges and expenses of GuideStone Funds before investing. For a copy of the prospectus with this and other information about the funds please call1-888-98-GUIDE (1-888-984-8433) or visit www.GuideStoneFunds.org to view or download a prospectus. You should read the prospectus carefully before investing.

Financial Assistance for Churches with a Limited Budget

(Page 15)

Wyndolyn Royster HollifieldMission Church Assistance Fund

  • Annual church budget less than $75,000 a year

  • Up to $3,000 in matching contributions over five years are possible

  • Contact GuideStone Financial Resources 1-888-98-GUIDE (1-888-984-8433)for details

Social Security Assistance

(Page 15)

  • Assists ministers who pay self-employment tax

  • Offset is generally half the total self-employment tax

  • Reported as taxable income

Questions on Staff Issues

  • Housing Allowance for ministers

    • How does it really work?

    • Who qualifies for it?

  • Church Staff benefits

  • Any suggestions for retirement plans for full time staff?

  • Disability Benefits and other issues

Housing Allowance If You Own or Rent

  • The maximum amount eligible for exclusion is the lesser of:

    • The designated amount

    • The actual eligible expenses

    • The fair rental value of the home including furnishings plus utilities

Housing Allowance If You Live in a Parsonage

  • The maximum amount you can exclude isthe lesser of:

    • The designated amount

    • The actual eligible expenses

Housing Allowance

  • (Page 17)

    • For eligible ministers (IRS Code Section 107)

    • Designated in advance by the church

    • Non-taxable for federal income taxes only, subject to limits

    • Social Security taxes (SECA) payable on the fair rental value of a parsonage and on the housing allowance

Housing AllowanceActual Eligible Expenses

  • Mortgage or rent

  • Utilities

  • Property taxes

  • Insurance

  • Furnishings

  • Repairs and improvements

How to Designate aHousing Allowance

  • (Pages 17–18)

    • Minister provides church an estimate of anticipated housing expenses (form on page 14)

    • Church officially designates and documents housing allowance in advance

    • Action recorded in church minutes and minister is notified (form on page 14)

How to Designate aHousing Allowance

  • (Pages 17–18)

    • Housing allowance may be changed prospectively during the year

    • Minister is responsible for documenting expenses

Disability-Can We, Should We?

  • Church can be in State Disability Insurance (SDI).

  • Church cannot have unemployment benefits

  • Churches are not involved in unemployment and cannot be

  • Federal Unemployment Tax Act (FUTA) Churches and religious organizations are not liable for FUTA tax. For further information on FUTA, see IRS Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers.

Are there any other payroll issues we need to be aware of?

  • Ministerial income, reporting pastor's income on IRS form 941 (qterly) or 944 (yrly)

  • On the 941, you don't compute ministerial income on form subject to social security tax, but you do for non-ministerial income

  • Income to pastor includes: trips, love gifts, anniversary Sundays, Christmas, anything given to pastor-Consideration

Does the Church need to file for our own tax exemption status?

  • Yes, I recommend it

  • If church members get audited, church name is in auditors book. More hassle if the church is under CSBC umbrella

Tax exemption status: making tax-free purchases

  • (given that Alameda county has 9.75% sales tax, that would make a huge difference for us)

  • Tax Exemption comes through State Board of Equalization

  • Have to be approved, get Sellers Permit

  • Buy without sales tax, must charge sales tax on sales,

  • Pay SBE of CA.

Are there tax or reporting requirements for ancillary bank accounts ?

This is a big issue in churches across ethnicity

  • Who is controlling the money?

  • The church or the organization? Is it going through the church treasurer?

  • To get a contribution statement, funds must go through church books. Otherwise, no charitable contribution.

Penal Code 326.6

Bingo and Raffles (pg. 29)

  • Charity bingo start-up costs range from a few hundred dollars to many thousands of dollars. Proper planning by directors is essential to insure profitable, cost-effective, and legal games. Every charity must comply with the local charity bingo licensing requirements before operating charity bingo games. Charities must account to local licensing authorities for all bingo proceeds.

  • Raffles conducted by nonprofit organizations for charitable purposes are lawful under California law which took effect in 2001. (Penal Code section 326.6.) Ninety percent of raffle revenue must be used for a charitable purpose or program. Charitable organizations must register with the Attorney General’s Registry of Charitable Trusts prior to conducting a raffle and must annually report the results of any raffles conducted. Registration and reporting forms may be obtained from the Registry of Charitable Trusts by mail or from the Charitable Trusts website.

Do we need to have an outside auditor? If so, Why?

  • Yes

    What are some legal implications for not having an outside audit?

  • Nothing if your books are in order. NO hint of wrongdoing.

  • If you say you did an internal audit (illegal to say in CA) and there is wrongdoing with money, church can be sued. You did the audit. You are liable.

Do we need to pay taxes on any interest from Savings and CD accounts?

  • No.

What is the best way to manage our money to plan for the future growth?

  • You need an investment policy

  • The Guiding Churches through the Money Maze CD has such a policy

Investment Policy includes:

  • Firmly establish procedures, policies and practices for making investment decisions and allowing for continuity when there is committee turnover.

  • Provide a way to monitor or measure an investment or an investment advisor as well as the selection thereof.

  • Provide disciple during the times when there might be emotional or volatile markets.

  • Provide a way to determine a committee’s risk profile and evaluate when changes need to be made in relation to current spending needs.

  • List transactions that the committee is prohibited from doing.

  • Describe the committee’s view and policy on ethical investing.

  • Describe the committee’s policy on self-dealing. This means not allowing committee members to take part in any investment decisions that would create a conflict of interest.

What Questions can I answer for You?

Rod Wiltrout

CP Ministries &

Church Finance Specialist

California Southern Baptist Convention


F: 559.229.2824

M: 559.287.7840

E: rwiltrout@csbc.com


Insurance License # 0F75072

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