Key Tax Dates March 2023

Monthly and semiweekly requirements for depositing payroll taxes.

Richard R. Hammar

Monthly Requirements

If your church reported withheld taxes of $50,000 or less during the most recent lookback period (for 2023 the lookback period is July 1, 2021, through June 30, 2022), then withheld payroll taxes are deposited monthly.

Monthly deposits are due by the 15th of the following month.

Important Note: If withheld taxes are less than $2,500 at the end of any calendar quarter (March 31, June 30, September 30, or December 31), the church need not deposit the taxes. Instead, the church can pay the total withheld taxes directly to the IRS with its quarterly Form 941. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes.

Semiweekly Requirements

If your church reported withheld taxes of more than $50,000 during the most recent lookback period (for 2023 the lookback period is July 1, 2021, through June 30, 2022), then the withheld payroll taxes are deposited semiweekly with a bank.

This means that for paydays falling on Wednesday, Thursday, or Friday, the payroll taxes must be deposited on or by the following Wednesday. For all other paydays, the payroll taxes must be deposited on the Friday following the payday.

Note further that large employers having withheld taxes of $100,000 or more at the end of any day must deposit the taxes by the next banking day. The deposit days are based on the timing of the employer’s payroll. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes (7.65 percent of wages), and the employer’s share of Social Security and Medicare taxes (an additional 7.65 percent of employee wages).

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Note: If a date listed for filing a return or making a tax payment falls on a Saturday, Sunday, or legal holiday (either national or statewide in a state where the return is required to be filed), the return or tax payment is due on the following business day.

Note: You must use electronic funds transfer to make all federal employment tax deposits. This is generally done using the Electronic Federal Tax Payment System, a free service provided by the U.S. Department of Treasury. If you don’t wish to use EFTPS, you can arrange for your tax professional, financial institution, or payroll service to make deposits on your behalf. Failure to make a timely deposit may subject you to a 10-percent penalty.
Image: Image: Getty Images/Infadel

The Employee Retention Credit: Helpful Benefit or Significant Risk?

A legitimate, COVID-era tax credit available to churches could offer huge cash benefits—but beware potential predators.

The Editors

Editor’s Note: On September 14, 2023, the Internal Revenue Service (IRS) announced it has immediately stopped processing new Employee Retention Credit (ERC) claims “amid [a] surge of questionable claims.”

Concerns raised by tax professionals, coupled with aggressive marketing to ineligible applicants, “highlights unacceptable risk to businesses and the tax system,” the agency said.

The IRS will continue processing previously filed claims and pay out claims it approves, it said, but processing times will take longer as the agency applies more scrutiny to address fraud concerns.

The IRS also said it is finalizing details to help entities victimized by “aggressive promoters” who have used repeated advertising and direct-contact methods to entice claim applications without carefully evaluating whether an entity truly qualifies for the credit.

Taxpayers who already have a claim submitted, but fear they were misled–including churches and small businesses–will be eligible for a special withdrawal option as well, the IRS said. It plans to announce details for the option soon.

The IRS said more than 600,000 claims remain unprocessed.

Church Law & Tax will continue to monitor developments.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, designed to stimulate the economy during the early days of the COVID-19 pandemic, contained a provision few initially noticed: the Employee Retention Credit (ERC).

The ERC provides employers, including tax-exempt entities like churches, funds in the form of financial credits for retaining employees during financial downturns or during times when pandemic-related mandates disrupted operations.

The credits are generous, and could prove quite large, depending on an employer’s size.

In 2021, Church Law & Tax published a comprehensive article by CPAs Kaylyn Varnum, Michele Wales, and Mike Batts. It further explains the credit, how it works, and how churches can determine their eligibility and potentially pursue it.

Because of the amount of money potentially available, interest in the ERC has exploded, much of it driven through massive advertising efforts by businesses seeking to assist employers.

Unfortunately, many of these third parties have provided incorrect—if not fraudulent—guidance while advising employers to seek the credit. Employers can face significant penalties if they claim a credit that is improper.

Last November, the Internal Revenue Service (IRS) issued a Tax Tip outlining these concerns. By some estimates, the potential fraud could prove sizable. The Treasury Inspector General for Tax Administration’s “Semiannual Report to Congress” last September noted a Utah case in which a man attempted to claim more than $11 million in ERC claims. An Accounting Today article contends fraudulent claims made using the ERC may already total $2 trillion, suggesting the ERC could be the largest tax-related scam in the country’s history.

On March 20, 2023 the IRS upped the ante and added the ERC to it’s annual dirty dozen list. “The aggressive marketing of these credits is deeply troubling and a major concern for the IRS,” said IRS Commissioner Danny Werfel. “Businesses need to think twice before filing a claim for these credits.”

However, efforts by these third parties have only intensified in the form of television, radio, and internet advertising and direct calls to employers. That’s likely only going to continue since employers can generally seek the credit through April 15, 2025.

Church Law & Tax asked Batts, one of its longtime senior editorial advisors, for help in understanding why churches should still explore their eligibility, but exercise caution as they do.

Q: You’ve advocated for the ERC, but your recent article for your firm describes “the biggest tax fraud scandal of all time is probably happening now.” What’s happening?

Hardly anyone knew the ERC existed 18 months ago, let alone understood the financial benefit available to them if they met the criteria. We spent a lot of time and energy trying to get employers to pay attention and pursue it.

What’s happening now is that we have a growing number of bad actors who are targeting employers, promising them the moon on a contingency-fee basis, then getting the employers to claim credits…some of which are improper. In many cases, the bad actors do not adequately consider the facts and the law to determine if the employers truly qualify.

We have clients, including churches, getting contacted all the time by these third parties.

Q: Just how large of a problem has it become?

The average ERC claim for one of our clients is worth about $500,000. Some are less. Some are in the millions. Many churches are rightfully eligible and would very much benefit from this.

Now think about claims being made erroneously or fraudulently. If one church that does qualify can validly claim several hundred thousand dollars or more, when you extrapolate the numbers on a nationwide basis, the overall amounts for this tax credit nationally are huge—unlike anything we’ve ever seen.

Q: How do things go wrong?

Multiple criteria must be met for an employer to qualify for the ERC for any particular calendar quarter during the relevant eligibility period (which is generally most of 2020 and the first three calendar quarters of 2021). Those criteria include either a decline in “gross receipts” (a technical term with great significance) or a partial suspension of operations due to specific government orders.
Learn more about determining eligibility for the ERC in this article.

Many of these third parties aren’t doing due diligence to determine whether the employer qualifies or whether the amounts claimed are accurate.

Here’s why the ERC is ripe for fraud: An employer claims the credit through an amended payroll tax return and doesn’t need to submit any documentation or explanation with it.

Q: How do these third parties convince churches to go along?

A provider will call and say the church just needs to answer a few preliminary questions. Do you have employees? Did you operate differently during COVID-19 restrictions? Most everyone, of course, says yes.

An unscrupulous provider may then ask for specific numbers of employees and comes up with a “calculation” of the total credit and says the church should make the claim—and it says it won’t receive its 10- to 12-percent contingency fee unless the church receives the credit funds from the IRS.

Some providers even say they’ll represent the church if the IRS later comes after them. So, a pastor or leader thinks, What have I got to lose?

Q: But does the church potentially have a lot to lose?

Yes. When the church files the amended payroll tax return and says it qualifies for the credit, it does so under penalty of perjury.

If the proper due diligence hasn’t been done in making the claim, that’s a problem. Potentially, a big problem.

When the IRS receives the amended return, it often processes and pays the claim because it’s a relief credit and there’s pressure on the IRS to get the funds out. The IRS is under no legal requirement to pre-audit or pre-verify credit claims, and the IRS isn’t currently adequately staffed to do so.

But by law, the IRS still has up to five years to audit a claim. News reports indicate the IRS has put analytics into place to start flagging suspicious claims. In some instances, some of these bad actors are getting caught, which can put their client lists into the hands of the IRS and can subject those clients to possible audits.

If a church makes a bad claim and the IRS later catches it, the best-case scenario is that the church pays back the credit, plus interest. A worse case is that it pays back the credit, plus interest, and penalties. And the worst case is that the penalties are severe, and if there’s evidence the church leader who signed off knew the claim was false, he or she could potentially face criminal charges.

Q: Given the credit is legitimate, and churches may need help determining eligibility, what guidance would you give them?

I suggest keeping the following tips in mind:
  • Unsolicited calls from unknown providers are a reason to use extra caution, as is a provider who agrees to be paid a percentage of the credit amount you claim or receive. In many cases, the percentage-based fees are several times what other tax professionals (like attorneys or CPAs) may charge to help your organization make a valid ERC claim.
  • Don’t work with a provider solely based on the fact the provider helped other organizations you know.
  • Independently research and compile information about the provider and its reputation, then weigh it carefully.
  • Ask the provider whether it will provide your church—for recordkeeping purposes—with full supporting documentation for the ERC it says you can claim. Similarly, if your church does regular audits with an independent CPA firm, ask whether the provider will provide full documentation to the CPA firm.
  • Evaluate trusted legal, accounting, and tax professionals your church already works with. One may be knowledgeable about the ERC and can help you both evaluate your church’s eligibility and any effort to pursue it.
  • If a provider states that it will represent you before the IRS in the event of an examination, or it will refund its fee for any portion of an ERC claim rejected by the IRS, evaluate the potential risk to your church if the provider does not follow through on such commitments.

(Editor’s Note: This interview was edited for length and clarity and includes excerpts providing further details from a piece recently written by Batts for his firm’s clients.)

How the New SECURE 2.0 Affects Churches and Employees with Retirement Distributions, Enrollment Rules

Under SECURE 2.0, ‘Catch-Up’ limits increase, and employers soon can help employees more as they deal with student debt.

Richard R. Hammar

Congress recently passed, and President Biden signed into law, an update to the SECURE Act of 2019 (SECURE 1.0). The new law is named the Setting Every Community Up for Retirement Enhancement Act (SECURE 2.0).

This law is designed to:
  • increase retirement savings,
  • simplify and clarify retirement plan rules and,
  • encourage employees to contribute more to their retirement accounts.

Effective now

Mandatory distributions now set to begin at 73 (Section 107)
 
The minimum age jumped to 72 under SECURE 1.0. Now, under SECURE 2.0, the minimum age is 73. In 2033, it jumps to 75. The goal? Making sure people spend their retirement savings before they die instead of passing it on to future generations.

Also, Section 302 of SECURE 2.0 drops the required minimum distributions tax penalty from 50 percent to 25 percent for qualified plans. It drops even further (to 10 percent) if the failure to take a minimum distribution is corrected in a timely manner.

Stay informed! Consider an Advantage Membership with Church Law & Tax for access to in-depth information and analysis on topics confronting today’s church pastors and leaders.

Small—and immediate—financial incentives for contributing to a plan (Section 113)

While employers may provide matching contributions as a long-term incentive for employees to contribute to a retirement plan, they have not been allowed to offer immediate financial incentives for such activities.

SECURE 2.0 removes this barrier by allowing de minimis financial incentives, such as low-dollar gift cards, not paid for out of plan assets, to boost employee participation in 401(k) and 403(b) plans.

Penalty-free withdrawals for emergencies (Section 115)

SECURE 2.0 allows for once-a-year distributions from 401(k), 403(b), and Individual Retirement Account (IRA) plans of up to $1,000 for unforeseeable and/or immediate financial needs of a personal or family nature.

Taxpayers have up to three years to repay the money and, while they’re repaying it, no additional emergency withdrawals are allowed.

Assisting states in locating owners of applicable savings bonds (Section 122)

Section 122 requires the Treasury Secretary to share certain relevant information with a state that relates to an applicable savings bond registered to an owner with a last known or registered address in that state.

The state can use that information to locate the registered owner in accordance with the state’s standards for recovery of abandoned property. Section 122 further requires the Treasury Secretary to develop guidance as may be necessary to carry out the proper disclosure and protection of such information.

Enhancement of 403(b) plans (Section 128)

In the past, 403(b) plan investments were generally limited to annuity contracts and publicly traded mutual funds to the detriment of charitable, public school, and college and university employees. Now, the law allows 403(b) custodial accounts to participate in group trusts with other tax-preferred savings plans and IRAs.

Retirement plan overpayment recovery (Section 301)

Retirement plan fiduciaries can now decide whether to recoup overpayments mistakenly made to retirees according to certain limitations and protections put in place to protect retirees.

Background: Through no fault of their own, retirees sometimes receive more money than they are owed under their retirement plans, which can cause problems when plan fiduciaries look to claw back those overpayments, with interest.

SECURE ACT 2.0 is a continuation of SECURE ACT 1.0, passed in 2019, that allows penalty-free distributions from qualified retirement plans and IRAs for adoptions, for example. Read Richard Hammar’s SECURE 1.0 analysis here.

Updating dollar limits for mandatory distributions (Section 305)
Section 305 expands the Employee Plans Compliance Resolution System (“EPCRS”) to:
  1. Allow more types of errors to be corrected internally through-self correction,
  2. Apply inadvertent IRA errors, and
  3. Exempt certain failures to make required minimum distributions from the otherwise applicable excise tax. For example, Section 305 allows for correction of many plan loan errors through self-correction, which are a frequent area of error and can be burdensome to correct a single loan error through the Internal Revenue Service (IRS).

Any guidance or revision of guidance required by Section 305 shall be made widely known no later than 2 years after the date of enactment of this Act. Revenue Procedure 2021–30 (or any successor guidance) shall be updated to take into account the provisions of this section no later than 2 years after the date of enactment of this Act.

Employees can now certify hardship distribution conditions (Section 312)

Employees in need of a hardship withdrawal from an eligible retirement plan can now, under certain circumstances, self-certify that they’re in need of the funds and have no other options available to meet the need.

Section 312 is effective for any plan year beginning after the date of the enactment of SECURE 2.0.

Tax treatment of IRA involved in a prohibited transaction (Section 322)

Section 322, Tax treatment of IRA involved in a prohibited transaction. When an individual engages in a prohibited transaction with respect to his or her IRA, the IRA is disqualified and treated as distributed to the individual, irrespective of the size of the prohibited transaction. Section 322 clarifies that if an individual has multiple IRAs, only the IRA with respect to which the prohibited transaction occurred will be disqualified.

Exception to withdrawal penalties for terminally ill individuals (Section 326)

Section 326 provides an exception to the 10 percent tax on early distributions from tax preferred retirement accounts in the case of a distribution to a terminally ill individual.

Effective after Dec. 31, 2023

Higher ‘Catch-Up’ limits for IRA contributions (Section 108)

The $1,000 limit on IRA contributions is to be indexed for individuals who have reached age 50 starting with taxable years that begin after Dec. 31, 2023.

Help for those struggling to save while paying student debt (Section 110)

SECURE 2.0 permits an employer to make matching contributions under a 401(k), 403(b), SIMPLE IRA, or 457(b) plan with respect to “qualified student loan payments.”

What is a “qualified student loan payment?” Broadly defined, it’s “any indebtedness incurred by the employee solely to pay qualified higher education expenses of the employee.”

Starter 401(k) plans for employers with no retirement plans (Section 121)

An employer that does not sponsor a retirement plan can offer either a starter 401(k) or safe harbor 403(b) plan that would generally require all employees to be default-enrolled anywhere from a 3- to 15-percent deferral rate. Annual deferrals are capped at $6,000, with another $1,000 available for catch-up contributions after age 50. Section 121 becomes effective for plan years beginning after Dec. 31, 2023.

Emergency savings accounts linked to individual account plans (Section 127)

Employers can offer pension-linked emergency savings accounts to employees earning less than $150,000 in the previous year.

They can also opt employees into these accounts at no more than 3 percent of an employee’s salary up to $2,500, at which time additional contributions can shift to the employee’s Roth-defined contribution plan.

Contributions are made on a “Roth-like” basis (contributions are taxed upon deposit, but future withdrawals are not taxed) and can be matched dollar-for-dollar up to $2,500.

Employees can then pull from the accounts no more than four times a year without fees or charges and, upon separation from service, employees can cash these accounts out or roll them into another plan.

Updating dollar limits for mandatory distributions (Section 304)

Section 304 allows employers to transfer former employees’ retirement accounts from a workplace plan into an IRA if the balance is between $1,000 and $7,000, effective for distributions made after Dec. 31, 2023. (The previous balance limit for such transfers was $5,000.)

Penalty-free withdrawals for domestic abuse victims (Section 314)

Section 314 allows penalty-free withdrawals from retirement plans for domestic abuse victims.

A domestic abuse survivor may need to access his or her money in their retirement account for various reasons, such as escaping an unsafe situation. Section 314 allows retirement plans to permit participants that self-certify that they experienced domestic abuse to withdraw a small amount of money (the lesser of $10,000, indexed for inflation, or 50 percent of the participant’s account).

A distribution made under Section 314 is not subject to the 10 percent tax on early distributions. Additionally, a participant may repay the withdrawn money from the retirement plan over 3 years and then receive refunded income taxes on money that is repaid.

New hardship withdrawal rules for 403(b) plans (Section 602)

Historically, distribution rules for 403(b) plans have been more restrictive than those of 401(k) plans. SECURE 2.0 conforms 403(b) distribution rules to less restrictive 401(k) rules.

Effective after Dec. 31, 2024

Expanding automatic enrollment in retirement plans (Section 101)

Many Americans reach retirement age with little or no savings because they don’t participate in employer-sponsored retirement plans or they aren’t offered ones in the first place.

Section 101 requires 401(k) and 403(b) plans to automatically enroll all eligible participants (who can then opt-out if they so choose).

There is an exception for church plans, small businesses with 10 or fewer employees, new businesses (i.e., those that have been in business for less than 3 years), and governmental plans.

The automatic enrollment amount is at least 3 percent but not more than 10 percent, and is set to increase by 1 percent each year until it reaches at least 10 percent, but not more than 15 percent.

All current 401(k) and 403(b) plans are grandfathered.

Higher ‘Catch-Up’ limits based on certain ages (Section 109)

Per section 109, maximum catch-up contributions starting in 2025 jump from $6,500 ($3,000 for SIMPLE plans) to the greater of either (a) $10,000, or (b) 50 percent more than the regular catch-up amount for those ages 60 to 63. Increased amounts will be indexed for inflation after 2025. This takes effect for taxable years beginning after Dec. 31, 2024.

Retirement savings lost and found (Section 303)

Section 303 creates a national online searchable lost and found database for Americans’ retirement plans at the US Department of Labor (DOL). The database will help those who have lost track of a pension or 401(k) plan a way to search for contact information of their plan administrator. The DOL has until the end of 2024 to create the database.

Effective on or after Jan. 1, 2025

Improving coverage for part-time workers (Section 125)

For plans years starting on or after Jan. 1, 2025, employers will be required to allow long-term, part-time workers to participate in 401(k) and 403(b) plans either after 1 year of service (with the 1,000-hour rule) or 2 consecutive years of service (where the employee completes at least 500 hours of service).

Long-term care contracts purchased with retirement plan distributions (Section 334)

Permits retirement plans to distribute up to $2,500 per year for the payment of premiums for certain specified, high-quality, long-term care insurance contracts.

Effective after Dec. 31, 2026

Saver’s Match (Section 103)

Prior law provided for a nonrefundable credit for certain individuals who make contributions to a 403(b) plan or some other retirement plans.

Section 103 repeals and replaces the credit, changing it from a credit paid in cash as part of a tax refund into a federal matching contribution that must be deposited into a taxpayer’s retirement plan.

A few details about the match:
  1. It is 50 percent of retirement plan contributions up to $2,000 per individual.
  2. It phases out between $41,000 and $71,000 in annual income in the case of taxpayers filing a joint return ($20,500 to $35,500 for single taxpayers or those married filing separate, and $30,750 to $53,250 for head-of-household filers).

SECURE 2.0 also directs the Treasury Department to increase public awareness of the Saver’s Match to increase use of the match by low- and moderate-income taxpayers.

2023 Church Law & Tax Webinars

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Getting Ahead of the 2023 Tax Season

On-Demand Webinar: Ten tax developments church leaders should know for filing taxes this year- and for meeting tax requirements for the year ahead.

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For churches, January usually brings a flurry of related activities: providing W-2s to employees and 1099-NECs to self-employed persons; sending out charitable contribution statements to donors; and ensuring that other tax deadlines are met, including Form 941 filings.

Additionally, church leaders should note other updates, reminders, and developments throughout tax season–as well as the rest of the year–whether they relate to clergy housing allowances, charitable contributions, or other issues.

This video features Richard Hammar, renowned church attorney, and author of the Church & Clergy Tax Guide 2023, discussing the most important developments for church tax filing in 2022 and compliance in 2023.

Panelists:

Richard Hammar | Attorney & CPA

Matthew Branaugh | Attorney & Content Editor for Church Law And Tax

Reading & Resources: 

Download the resources and templates mentioned in this webinar below. Or read one of the articles to get a handle on the basics of developing fair compensation in your ministry.
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Busted Pipes, Busted Budgets: Fighting Back Against Winter’s Hidden Risks

Eye-popping property damage insurance claims show why churches even in warmer states need to prepare and respond when winter weather looms large.

Matthew Branaugh, Attorney | Editor, Content and Business Development
Bio

The nation’s three largest church insurers say massive winter storms hitting warm-weather states have created spikes in property damage claims—many of them triggered by busted frozen pipes that not only cause thousands of dollars in damages but disrupt worship services and other events.

Stay informed, keep learning! Become a Church Law & Tax Advantage member today.

Greater awareness and responsiveness, particularly in regions unaccustomed to severe winter weather, can potentially thwart problems.

“As you get down into the warmer Southern states, the nature of the freeze and the damage that can be done can be pretty eye-opening,” warns Eric Spacek, assistant vice president of risk control for Church Mutual Insurance Company, which covers about 90,000 congregations. “This is a matter of stewardship. We’re always talking about how much better it is to prevent things from happening than to deal with it on the back-end.”

But pastors and leaders, particularly in the lower Midwestern, Southern, and Southeastern portions of the United States, often get caught off-guard by extreme winter weather. Frustrating and costly problems often ensue.
Planning a time of outdoor fun and fellowship for your church’s staff, students, or members this winter? James Cobble offers tips on how to not only arrive safely, but how to stay safe once there.

Historic storms, high claims

Two specific storms in recent memory—Winter Storm Uri (about $200 billion in damages) in February of 2021 and Winter Storm Elliott (about $5 billion in damages) during Christmas of 2022—underscore the size and scope of the emerging problem.

Claims poured in from churches immediately after both storms.

The average number of claims typically filed in December with Brotherhood Mutual Insurance Company, an insurer of more than 65,000 houses of worship in 47 states, hovers between 460 and 560, says Thomas Lichtenberger, the company’s assistant vice president of property claims.

Lichtenberger adds that, within a week of Elliott’s conclusion, 1,300 claims came in — 963 related to frozen pipes.

“Water damage from broken pipes—that’s not new,” says Tom Strong, director of risk control for GuideOne Insurance, which covers about 40,000 houses of worship in 48 states and received 257 claims tied to frozen pipes in the days following Elliott. “Where they occur—that’s the big change.”

Georgia, Texas, Missouri, and Alabama ranked among the top five for pipe-related claims for GuideOne, Strong says, with New York the lone cold-weather state to join them.

Meanwhile, the average size of GuideOne’s claims after Uri was about $30,000, a tally Elliott is expected to match based on early indicators, says James Balzarine, property claims director for the company.

Awareness and anticipation

Pastors and church leaders in traditionally warm weather states rarely encounter temperatures brought on by storms like Uri and Elliott, meaning their first-time experiences likely are unpleasant ones.

During Elliott, Charleston, South Carolina, broke a 33-year record low—20 degrees Fahrenheit—on Christmas Eve of 2022, while Athens, Georgia, did the same one day earlier, dropping to 11 degrees.

“Their history has not given them the idea that they should be prepared for this,” Strong says.

Even places better conditioned for wintry cold got socked by Elliott, leaving leaders scrambling.

Brotherhood Mutual still received 24 pipe-freeze claims from churches in Michigan after Elliott. Another 36 came from Indiana-based churches.

Denver plummeted to -20 degrees on December 22, 2022. One Colorado church insured by Church Mutual was alerted to a temperature drop in its building thanks to a sensor purchased through a company-sponsored program. A church leader discovered a propane outage upon arriving. A refill restored heat before pipes could freeze, Spacek says.
When bad weather comes, Sally Wagenmaker reminds churches that there are several logical—and legal—considerations when shutting things down and sending folks home.

“You want to make sure to have the mindset that this could happen,” Lichtenberger says, adding many churches use their buildings a few hours on Sundays and maybe only one or two other days of the week.

Regardless of geography, when the forecast calls for storms bearing frigid cold, leaders should plan to visit their buildings multiple times each day throughout the storm.

“Be your own sensor,” Lichtenberger says.

Take Action: Fight back against freezes

Awareness and anticipation are valuable. Advanced preparation is, too. Note these tips from the American Red Cross and church insurers.

When cold is on its way or already arrived
  • Identify all the ways to shut off water in the building.
  • Know the location of the building’s main valve and how to turn it off.
  • Also know how to turn off water to the fire sprinkler system. One church hit by Elliott spent an hour searching for its system’s key and “just had to sit there and watch the water run” from a broken line, Spacek says.
  • Keep building thermostats above 55 degrees around the clock, despite the added expense.
  • Remember that buildings with one thermostat naturally hold that temperature in the surrounding area, but colder air will build outside its immediate radius, Spacek adds. Setting the temperature higher may be necessary to help rooms further away from the thermostat.
  • Also recognize situations when a higher thermostat setting may be needed because pipes exist in basements, crawl spaces, and attics or run along exterior walls.
  • Open cabinet doors below sinks so that warmer room air contacts pipes.
  • When applicable, temporarily remove ceiling tiles located below plumbing, including fire sprinkler lines, so that warmer air circulates around it. Leaders often forget about fire sprinkler lines, and those often freeze and break. The resulting damage can be worse since water cascades down and spreads.
  • Allow sink faucets to continuously trickle with hot and cold water—the movement makes it harder for water in the pipes to freeze.
  • Visit the building multiple times each day during the storm.

When a frozen pipe is suspected or discovered
  • Turn on faucets throughout the building to try and relieve pressure, especially as efforts to thaw a pipe begin, and to prevent other freezes from developing.
  • A plumber may be needed to find the location of a frozen pipe and resolve it. Remember that pipes can also freeze in multiple spots.
  • If you know the location (or locations) of a freeze:
    • Wrap an electric heating pad around the frozen section, advises the Red Cross.
    • An electric hair dryer or portable space heater also can be used, the Red Cross notes, but keep them away from flammable materials. Avoid using extension cords with devices, adds Spacek.
    • Towels soaked in hot water (if another water source is available) and wrapped around a pipe also can help.
    • Never use an open-flame device, such as a blow torch or propane heater, to thaw pipes.
    • If thawing occurs, but water pressure isn’t fully restored, call a plumber.
    • If a break occurs, immediately shut off the water source.

When weather is warmer
  • Consult with professionals about the type of insulation to use in walls and attics. When work gets done in walls or attic spaces, make sure insulation gets put back into place, Lichtenberger says.
  • Consider using pipe insulation, especially in basements, crawl spaces, and attics, notes Brotherhood Mutual.
  • Re-caulk around doors, windows, and recessed lighting fixtures.
  • Research costs for wireless monitors or sensors that detect water leaks as well as air temperature changes. During Elliott, Church Mutual estimates $2.36 million in property damage was avoided because of alerts triggered by sensors installed by its insured churches, Spacek says.
  • A portable generator may be worth an investment, although these should only be run outdoors and away from doors and windows, Spacek notes. Permanent generators are ideal, but expensive, and should be considered only when the return on investment is apparent. After all, power outages are a common culprit behind frozen pipes.
Matthew Branaugh is an attorney, and the content editor for Christianity Today's Church Law & Tax.

Key Tax Dates February 2023

Among other important items, quarterly federal tax returns are due along with Affordable Care Act forms 1095-C and 1094-C for employers with 50 or more FTEs.

Richard R. Hammar, Attorney, CPA
Bio

Monthly requirements

If your church or organization reported withheld taxes of $50,000 or less during the most recent lookback period (for 2023, the lookback period is July 1, 2021, through June 30, 2022), then withheld payroll taxes are deposited monthly. Monthly deposits are due by the 15th day of the following month.

The 2023 Church & Clergy Tax Guide is available—preorder your print copy today or download the .pdf version now.

Note, however, that if withheld taxes are less than $2,500 at the end of any calendar quarter (March 31, June 30, September 30, or December 31), the church need not deposit the taxes.

Instead, it can pay the total withheld taxes directly to the IRS with its quarterly Form 941.

Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes.

Semiweekly requirements

If your church or organization reported withheld taxes of more than $50,000 during the most recent lookback period (for 2023, the lookback period is July 1, 2021, through June 30, 2022), then the withheld payroll taxes are deposited semiweekly. This means that for paydays falling on Wednesday, Thursday, or Friday, the payroll taxes must be deposited on or by the following Wednesday.

For all other paydays, the payroll taxes must be deposited on the Friday following the payday. Note further that large employers having withheld taxes of $100,000 or more at the end of any day must deposit the taxes by the next banking day.

The deposit days are based on the timing of the employer’s payroll. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes (7.65 percent of wages), and the employer’s share of Social Security and Medicare taxes (an additional 7.65 percent of employee wages).

February 10, 2023: Employer’s quarterly federal tax return due

Churches having nonminister employees (or one or more ministers who report their federal income taxes as employees and who have elected voluntary withholding) may file their employer’s quarterly federal tax return (Form 941) by this date instead of January 31 if all taxes for the fourth calendar quarter (of 2022) have been deposited in full and on time.

February 28, 2023: Filing 1095-C and 1094-C for applicable large employers and ACA compliance

Applicable large employers, generally employers with 50 or more full-time employees (including full-time equivalent employees) in the previous year, must file a Form 1095-C for each employee who was a full-time employee of the employer for any month of the previous calendar year by this date. Generally, the employer is required to furnish a copy of Form 1095-C (or a substitute form) to the employee.

The employer also files a Form 1094-C transmittal form with the IRS (including copies of each Form 1095-C). The purpose of this form is to ensure that applicable large employers are complying with the shared responsibility provisions of the ACA. Generally, you must file Forms 1094-C and 1095-C by February 28 if filing on paper (or March 31 if filing electronically) of the year following the calendar year to which the return relates. For calendar year 2022, Forms 1094-C and 1095-C are required to be filed by February 28, 2023, or March 31, 2023, if

filing electronically.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

10 Key Tax Developments for Pastors and Churches

The latest on church tax reporting, tax filing, housing allowances, Social Security exemptions, private letter rulings, and notable court cases.

The Editors

Several recent developments affect tax reporting and filings by ministers, church staff, and churches in the new year and beyond—and all are found in the 2023 Church & Clergy Tax Guide.

For Church Law & Tax’s Advantage Members, find a deeper overview of 10 key developments covered in the tax guide.

Among the highlights church leaders should note heading into 2023:

Status of the housing allowance
In March 2019, a federal appeals court rejected an atheist group’s challenge to the constitutionality of the ministers housing allowance. Gaylor v. Mnuchin, 919 F.3d 420 (7th Cir. 2019). The atheist group did not appeal this ruling, and there have been no further legal challenges.
Tip: Be sure and check out Church Law & Tax’s update on Designating a House Allowance for 2023 to include recommendations for a variety of situations.

Tax Court cases

Why several cases decided by the Tax Court and federal courts offer cautions for church leaders regarding frivolous tax arguments, embezzlement, and more.

Why a Florida court case underscores the Internal Revenue Service’s (IRS) power to impose tax liens on ministries.

Declining audit rates

What the US Government Accountability Office reports about audit rates for taxpayers.

Private letter rulings

Which “private letter rulings” involving churches, clergy, and charities will no longer be issued by the IRS.

Social Security exemptions

Whether ministers who previously sought exemption from Social Security can now seek to revoke the exemption—and how.

Act Now: Order the 2023 Church & Clergy Tax Guide today or become an Advantage Member to read about the remaining key developments and get a copy of the tax guide included with your membership.

Key Tax Dates January 2023

Noting the key tax forms due this month, along with other recurring deadlines.

Richard R. Hammar, Attorney, CPA
Bio

Monthly requirements

If your church or organization reported withheld taxes of $50,000 or less during the most recent lookback period (for 2023, the lookback period is July 1, 2021, through June 30, 2022), then withheld payroll taxes are deposited monthly. Monthly deposits are due by the 15th day of the following month.

Tip: The 2023 Church & Clergy Tax Guide is out—preorder your copy today (it will ship in January).

Note, however, if withheld taxes are less than $2,500 at the end of any calendar quarter (March 31, June 30, September 30, or December 31), the church need not deposit the taxes.


Instead, it can pay the total withheld taxes directly to the IRS with its quarterly Form 941. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes.
Non-compliance with IRS tax guidelines can be painful. And as this Florida minister learned, the IRS can–and will—attach a lien on church property in pursuit of an unpaid tax bill.

Semiweekly requirements

If your church or organization reported withheld taxes of more than $50,000 during the most recent lookback period (for 2023, the lookback period is July 1, 2021, through June 30, 2022), then the withheld payroll taxes are deposited semiweekly.

This means that for paydays falling on Wednesday, Thursday, or Friday, the payroll taxes must be deposited on or by the following Wednesday. For all other paydays, the payroll taxes must be deposited on the Friday following the payday.

Note further that large employers having withheld taxes of $100,000 or more at the end of any day must deposit the taxes by the next banking day. The deposit days are based on the timing of the employer’s payroll. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes (7.65 percent of wages), and the employer’s share of Social Security and Medicare taxes (an additional 7.65 percent of employee wages).

January 1, 2023: Payroll taxes

Social Security and Medicare taxes

Employees and employers each pay Social Security and Medicare taxes equal to 7.65 percent of an employee’s wages. The tax rate does not change in 2023.

While federal law exempts ministers from mandatory federal income tax withholding, many states may not have the same exemption available for ministerial employees. Check your specific state for details. Meanwhile, for a more comprehensive guide to church compensation and taxation, check out CPA Elaine Sommerville’s Church Compensation, Second Edition.

The 7.65 percent tax rate is comprised of two components: 1) a Medicare hospital insurance tax of 1.45 percent, and 2) an “old age, survivor and disability” (Social Security) tax of 6.2 percent. There is no maximum amount of wages subject to the Medicare tax. The tax is imposed on all wages regardless of amount.

For 2023, the maximum wages subject to Social Security taxes (the 6.2 percent amount) is $160,200. Stated differently, employees who receive wages in excess of $160,200 in 2023 pay the full 7.65 percent tax rate for wages up to $160,200, and the Medicare tax rate of 1.45 percent on all earnings above $160,200. Employers pay an identical amount. The Medicare tax rate for certain high-income taxpayers increases by an additional 0.9 percent.

Self-employment taxes

The self-employment tax rate (15.3 percent) does not change in 2023. The 15.3 percent tax rate consists of two components: (1) a Medicare hospital insurance tax of 2.9 percent, and (2) an “old age, survivor and disability” (Social Security) tax of 12.4 percent. There is no maximum amount of self-employment earnings subject to the Medicare tax. The tax is imposed on all net earnings regardless of the amount.

For 2023, the maximum earnings subject to the Social Security portion of self-employment taxes (the 12.4 percent amount) is $160,200. Stated differently, persons who receive compensation in excess of $160,200 in 2023 pay the combined 15.3 percent tax rate for net self-employment earnings up to $160,200, and only the Medicare tax rate of 2.9 percent on earnings above $160,200. The Medicare tax rate for certain high-income taxpayers increases by an additional 0.9 percent.

These rules directly impact ministers, who are considered self-employed for Social Security with respect to their ministerial services. Ministers should take these rules into account in computing their quarterly estimated tax payments.

Federal income taxes

Beginning on this date, churches having non-minister employees (or a minister who has elected voluntary withholding) should begin withholding federal income taxes from employee wages. To know how much federal income tax to withhold from employees’ wages, employers should have a Form W-4 on file for each employee. Employees should file an updated Form W-4 for 2023, especially if they owed taxes or received a large refund when filing their previous tax return. Employees should use the IRS Tax Withholding Estimator to determine accurate withholding.

January 17, 2023: Fourth quarter estimated taxes due

Ministers (who have not elected voluntary withholding) and self-employed workers must file their fourth quarterly estimated federal tax payment for 2022 by this date (a similar rule applies in many states to payments of estimated state taxes).

Employees of churches that filed a timely Form 8274 (waiving the church’s obligation to withhold and pay FICA taxes) are treated as self-employed for Social Security purposes, and accordingly are subject to the estimated tax deadlines with respect to their self-employment (Social Security) taxes unless they have entered into a voluntary withholding arrangement with their employing church or organization.

January 31, 2023: Tax forms due

Churches must furnish Copies B, C, and 2 of Form W-2 (“wage and tax statement”) by this date to each person who was an employee during 2022. This requirement applies to clergy who report their federal income taxes as employees rather than as self-employed, even though they are not subject to mandatory income tax (or FICA) withholding. Non-minister church employees must also receive a W-2.

Churches must send Copy A of Forms W-2, along with Form W-3, by this date to the Social Security Administration. If you file electronically, the due date is also January 31, 2023.

Churches must issue Copy B of Form 1099-NEC (“nonemployee compensation”) by this date to any self-employed person to whom the church paid nonemployee compensation of $600 or more in 2022. This form (rather than a W-2) should be provided to clergy who report their federal income taxes as self-employed, since the Tax Court and the IRS have both ruled that a worker who receives a W-2 rather than a 1099-NEC is presumed to be an employee rather than self-employed. Other persons to whom churches may be required to issue a Form 1099-NEC include evangelists, guest speakers, contractors, and part-time custodians.

Churches must send Copy A of Forms 1099-NEC, along with Form 1096, to the IRS by this date.

Churches must distribute a 2022 1099-INT form to any person paid $600 or more in interest during 2022 by this date (a $10 rule applies in some cases).

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
Image: Getty Images/Nora Carol Photography

The Respect for Marriage Act Does Less for Religious Liberty Than Meets the Eye

The Respect for Marriage Act (RMA) should be met with a healthy dose of realism

Erik Stanley, Law professor and attorney
Bio

The Respect for Marriage Act (RMA) should be met with a healthy dose of realism and skepticism. The Act provides limited protection for the religious liberty of churches and religious organizations, but it does not ultimately do much to change the status quo and it instead may invite more litigation against religious organizations, churches, and individuals who own businesses.

The reality is this: We cannot yet fully understand what it means for same-sex marriage to be enacted into federal statutory law. Given the breadth and complexity of federal law, we do not fully know, and cannot conclusively predict, how this law ultimately will impact churches, religious organizations, and people of faith.
Though legal scholars have much to say about how—and whether—the RMA addresses important religious liberty concerns, Church Law & Tax’s Richard R. Hammar says the law will have little immediate effect on churches.

Federal statutes and regulations represent a massive and complex web that connects to more areas of our life than we can comprehend. The Act’s statement that “any Federal law, rule, or regulation in which marital status is a factor,” should give us pause.

A search of the United States Code shows that the phrase “marital status” appears 248 times. The Code of Federal Regulations contains 350 uses of the phrase “marital status.” And each of these statutes or regulations likely is accompanied by a body of judicial decisions and complex interpretive rules.

The religious liberty protections contained in the Act are a slight improvement from the current state of the law but offer little more than the status quo—or an invitation for more litigation. For instance, there is this substantial question: Will this Act supersede state and local public accommodations laws, which are the primary legal vehicles for lawsuits? The answer likely only can come from court decisions rendered through future lawsuits.

Additionally, while the Act does contain some protections from the loss of tax-exempt status, grants, and contracts for religious organizations, the wording is vague and yet again may invite more litigation against religious organizations and churches.

The RMA also leaves out protections for individuals—those who sit in the pews and own for-profit businesses that they wish to closely align with their religious beliefs and practices. If the wording of the Act is true that, “Diverse beliefs about the role of gender in marriage are held by reasonable and sincere people based on decent and honorable religious or philosophical premises,” then why are individuals with sincerely held religious beliefs left unprotected?

Finally, we would be naïve to expect that this law will remain unchanged into the future. Statutes often are frequently amended and protections now in the law only exist as long as a majority in Congress wants them to remain.
Erik Stanley is an assistant professor of law at Liberty University School of Law, where he teaches and writes on litigation, church autonomy, and religious liberty issues. Stanley also is a partner at Provident Law in Scottsdale, Arizona, and has more than 20 years of experience handling religious liberty cases and advising religious institutions on various matters, including employment, tax, zoning and land use, and bylaws and policies.
Image: Getty Images/zimmytws

Why the Respect for Marriage Act Preserves Religious Liberty

I’m among four scholars who submitted an analysis to US Senators arguing that the Respect

Thomas Berg, Law Professor
Bio

I’m among four scholars who submitted an analysis to US Senators arguing that the Respect for Marriage Act (RMA) addressed religious liberty concerns for organizations that hold traditional views of marriage—and indeed offers potentially valuable protections for the future.

Let me summarize why.
The US Supreme Court’s 2015 decision in Obergefell v. Hodges already requires states to recognize same-sex marriages. But the Act is an insurance policy against the Court overturning Obergefell. It requires anyone acting “under color of state law” to recognize a marriage “valid in the state where [it] was entered.”
Though legal scholars have much to say about how—and whether—the RMA addresses important religious liberty concerns, Church Law & Tax’s Richard R. Hammar says the law will have little immediate effect on churches.

This does not make private organizations that support only man-woman marriage liable for who they employ or the services they provide. The Supreme Court has repeatedly held that private organizations do not act “under color of state law” even when they’re heavily state-regulated and receive all their income from state funds.

The Court will not overrule those decisions.

Moreover, the Act explicitly protects both churches and religious nonprofits from having to provides services, facilities, or goods “for the solemnization or celebration of a marriage.”

Critics of the RMA still warn that the Act could serve as a bootstrap to justify separate restrictions on conservative religious organizations. By analogy, they reference the Supreme Court’s 1983 decision in Bob Jones University, which allowed the IRS to strip tax exemptions from racially discriminatory private schools—including religious schools—on the basis of a “firm and unyielding” national policy, shown in numerous statutes, against racial discrimination.

But the Act addresses that concern. First, Section 7(a) of the RMA says the Act does not “deny or alter” any tax exemption, funding, license, accreditation, or other “benefit, status, or right of an otherwise eligible entity or person” (including, plainly, a religious organization). Because the Act does not even “alter” such rights (beyond just not “deny[ing]” them), it’s fair to infer that it can’t even be cited as one ground among many for such a step.

Moreover, Section 2(2) states that “[d]iverse beliefs about the role of gender in marriage” (including, plainly, the belief in man-woman marriage) “are held by reasonable and sincere people based on decent and honorable philosophical premises” and “are due proper respect.” This statement distinguishes traditional-marriage beliefs from those opposing interracial marriage, which receive no such affirmation (even as the statute protects interracial marriages). The finding counters the analogy to the Bob Jones University case and racism. It can—and will—be cited as a statement of “national policy” to respect, rather than penalize, organizations adhering to man-woman marriage.

Religious liberty bills that protect conservatives alone have failed in our closely divided times. Although the RMA doesn’t solve all of the religious liberty problems intersecting with gay and lesbian rights, it solves the problems it raises and offers a hopeful, if limited, model for future bipartisan efforts.
Thomas Berg is the James L. Oberstar Professor of Law and Public Policy at the University of St. Thomas School of Law in Minnesota. He teaches and writes on religious liberty, constitutional law, and intellectual property, and supervises students in the school’s religious liberty appellate clinic, which files briefs in cases before the US Supreme Court and appellate courts. Berg is also co-author of a leading casebook, Religion and the Constitution.
Image: Getty Images/ajijchan

6 Church Management Conferences You Don’t Want to Miss in 2023

Stay on top of the latest developments and trends, interact with the experts, and learn something new.

The Editors

Education and training are essential for effective church leadership.

Education and training are essential for effective church leadership. The commitment to continually learn helps ensure pastors, staff members, board members, and volunteers stay current on key developments and trends—an even greater priority amid ever-deepening political divisions and the stresses and strains of adapting to a post-pandemic world.

But choose wisely. Not all conferences are created equal and many demand significant investments of both time and money. And not only that, unscrupulous individuals target churches by purporting to provide tax and law information that is either erroneous, inaccurate, or misleading.

Let us help take some of the guesswork out of it by recommending these six conferences (organized in chronological order), all involving individuals and organizations you can trust to provide accurate information and whose ministry-minded focus will serve you well.


CapinCrouse 2023 National Nonprofit Virtual Seminar

CapinCrouse, the well-known nonprofit CPA firm, will again host its virtual event for nonprofit leaders. The program will include sessions specific to churches. Ted Batson, an advisor-at-large for Church Law & Tax, is a CPA and tax attorney who serves as a partner and Professional Practice Leader-Tax for CapinCrouse.

Date: February 8, 2023

Location: Virtual

Registration: $40

2023 XP-Seminar

This two-day conference, founded 19 years ago by XPastor.org founder David Fletcher, will educate and encourage about 200 select executive pastors, senior pastors, and other church leaders. The workshops and general sessions will cover key leadership and management issues facing medium, large, and multisite churches.

Keynote speakers include Pastor Todd Wagner, Dr. David Anderson, and Dr. Nathan Baxter. Attorney Matthew Branaugh from Church Law & Tax will host roundtable discussions with select executive pastors.

Dates: February 21-23, 2023

Location: Dallas, Texas

Registration cost: $699 (in-person)

The Church Network National Conference

The Church Network (TCN) hosts the longest-running national conference serving church business administrators. The 2023 event again will offer multiple days with general keynote speakers, a wide range of workshops, and an exhibit hall with vendors that serve the church market.

Dates: July 18-21, 2023

Location: Irving, Texas

Registration: Early registration for TCN members is $789 if registered before May 7, 2023. Registration for nonmembers $1,066 if registered before May 7, 2023. Registration costs then gradually increase for members and nonmembers leading up to the event.

Can’t make it? TCN also has more than 80 local chapters that meet monthly. These chapters offer guest speakers who cover various topics related to church administration.

BMWL National Nonprofit Conference

CPA firm Batts Morrison Wales & Lee covers recent developments and trends on tax, financial, and regulatory topics affecting nonprofit organizations and churches through an annual event. CPA Michael Batts, managing partner of the firm, is a senior editorial advisor for Church Law & Tax, and CPA Kaylyn Varnum, a partner at the firm, is an advisor-at-large for Church Law & Tax.

Date: August 29, 2023

Location: Virtual

Registration cost: $595 (early-bird pricing ends August 2, 2023)

Request an invitation to the conference through the conference website.

Church Compliance Conference

Attorney Erika Cole, a senior editorial advisor for Church Law & Tax, and her firm, Whiteford, Taylor & Preston, will host this one-day conference for pastors and church leaders, including executive pastors, trustees, church administrators, and finance officers. The event includes a special in-person session in Baltimore, followed by presentations available in person and virtually. Attorney and CPA Richard Hammar, senior editor of Church Law & Tax, will present a live video keynote address on key recent U.S. Supreme Court decisions. Matthew Branaugh, attorney and editor of Church Law & Tax, will join Cole for audience Q&A. Rev. Dr. Nicole Martin, chief impact officer for Christianity Today, also will attend.

Date: September 21, 2023

Location: In person and virtual

Registration cost: In-person: $995 (early-bird price). Virtual: free

Christian Legal Society National Conference

The Christian Legal Society (CLS) is the largest national organization serving attorneys and law students who are Christians. The CLS conference provides training and encouragement to legal professionals, including those who serve churches, ministries, and nonprofits. Matthew Branaugh, attorney and editor of Church Law & Tax, will present a workshop during the conference’s general counsel session. Continuing education credits are available to attorneys who attend.

Dates: October 5-8, 2023

Location: Boston Park Plaza, Boston, Massachusetts

Registration cost: Varies based on the individual’s membership status with the organization.
Related Topics: Posted:

2023 Church & Clergy Tax Guide for Advantage Members

Download your PDF of the guide as part of your Advantage Membership


Editor’s Note. This article is part of the Advantage Membership. Learn more on how to become an Advantage Member or upgrade your membership.

As part of your Advantage Membership, you get a PDF version of Richard Hammar‘s 2023 Church & Clergy Tax Guide.

This guide helps pastors and churches to:
  • Prepare 2022 tax returns
  • Understand tax laws
  • Correctly report federal income taxes and social security taxes
  • Distinguish relevant exemptions
  • Reduce tax liability

This guide also helps church treasurers, board members, bookkeepers, attorneys, CPAs, and tax practitioners to:

  • Define “income” for the church
  • Handle and report employee business expenses
  • Understand the substantiation rules that apply to charitable contributions and designated contributions
  • Grasp federal tax reporting requirements that apply to churches and church employees

This guide is indispensable throughout the year with in-depth coverage on:

  • Charitable contributions
  • Clergy retirement plans
  • Social Security taxes
  • Church reporting requirements
  • Housing allowance
  • Business-expense reimbursements

Download your 2023 Church & Clergy Tax Guide PDF today.

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Posted:

Advantage Members

10 Key Tax Developments Affecting Churches and Pastors in 2023

What you need to understand for 2022 filing and 2023 compliance.

Richard R. Hammar, Attorney, CPA
Bio

Editor’s Note: This article is part of the Advantage Membership. Learn more on how to become an Advantage Member or upgrade your membership.

Several recent developments affect tax reporting by ministers, church staff, and churches in 2022 and beyond. Ten of them are addressed here and are also found in the 2023 Church & Clergy Tax Guide (order yours today – it will ship in January) which covers other key developments.

1. Status of the housing allowance
In March 2019, a federal appeals court rejected an atheist group’s challenge to the constitutionality of the ministers housing allowance. Gaylor v. Mnuchin, 919 F.3d 420 (7th Cir. 2019). The atheist group did not appeal this ruling, and there have been no further legal challenges.

Tip: Be sure and check out Church Law & Tax’s update on Designating a House Allowance for 2023 to include recommendations for a variety of situations.

2. Revoking an exemption from Social Security

Once a minister seeks and receives an exemption from Social Security, it is generally irrevocable. Will Congress give ministers another opportunity to revoke an exemption from Social Security? It does not seem likely, at least for now. No bills were introduced in Congress in 2022 that would have authorized ministers to revoke an exemption from Social Security.

However, in 2020 the Internal Revenue Service (IRS) amended its Internal Revenue Manual (the “Manual”) by adding a section addressing the revocation of an exemption from self-employment taxes that was obtained for economic rather than religious reasons. The section notes that applications “made solely for economic considerations rather than religious opposition” mean the “taxpayer wasn’t qualified for the exemption from self-employment tax … effectively allow[ing] for revocation.”

The Manual then says a minister who notifies the agency about his or her wish to revoke a previously granted exemption because the application was solely based upon economic considerations will be advised the exemption has been revoked. The agency then will notify the Social Security Administration and it will note the change in the minister’s permanent file, along with including copies of all relevant material related to the change.

The section also notes that a minister who sought and received an exemption based on more than economic considerations will not be able to receive a revocation.

3. Charitable contribution deduction for non-itemizers

The CARES Act (2020) encouraged Americans to contribute to churches and charitable organizations by permitting them to deduct up to $300 of cash contributions, whether they itemize their deductions or not. Congress extended this deduction through 2021 and increased it to $600 for married couples filing a joint return. However, the deduction expired at the end of 2021 and Congress has not extended it, meaning it is unavailable for 2022 federal income tax returns.

4. No further private letter rulings on certain matters

According to the IRS, a “private letter ruling (“PLR”) is a written statement issued by the IRS to a taxpayer that interprets and applies tax laws to the taxpayer’s specific set of facts.” The IRS will issue a PLR “to establish with certainty the federal tax consequences of a particular transaction before the transaction is consummated or before the taxpayer’s return is filed.” The taxpayer must request a PLR in writing, and if the IRS responds with a PLR, it is binding on the agency—assuming the taxpayer does not deviate from the facts and circumstances described about the transaction in the request.

A PLR may not be relied on as precedent by other taxpayers or IRS personnel. However, the information can be helpful for understanding how the IRS views different issues, especially when taxpayers may face situations with similar facts and circumstances.

In 2022, the IRS announced that it will no longer issue PLRs under any of the following circumstances involving churches, clergy, and charities:
  • “Whether an individual is a minister of the gospel for federal tax purposes.” This means taxpayers will not be able to obtain clarification from the IRS in a letter ruling on their status as a minister for any one or more of the following matters: (1) eligibility for a parsonage exclusion or housing allowance, (2) eligibility for exemption from self-employment taxes, (3) self-employed status for Social Security, or (4) exemption of wages from income tax withholding. Revenue Procedure 2022-3.
  • “Whether amounts distributed to a retired minister from a pension or annuity plan should be excludible from the minister’s gross income as a parsonage allowance.” Revenue Procedure 2022-3.
  • “Whether a taxpayer who advances funds to a charitable organization and receives therefore a promissory note may deduct as contributions, in one taxable year or in each of several years, amounts forgiven by the taxpayer in each of several years by endorsement on the note.” To illustrate, a church member transfers $5,000 to her church and in return receives a promissory note from the church promising to pay back the note in annual installments over the next five years. Each year, on the due date of the annual installment, the note holder “forgives” the payment. Can the note holder treat the forgiven installment as a charitable contribution deduction? The IRS will no longer address such a question in a PLR. Revenue Procedure 2022-3.
  • “Whether a transfer is a gift within the meaning of section 102” of the tax code. To illustrate, a pastor retires after many years of service to the same church. The church presents him with a check in the amount of $10,000. Is this check taxable compensation or a tax-free gift? This is a question the IRS will no longer address in PLRs. Revenue Procedure 2022-3.
  • “Whether a compensation of property transaction satisfied the rebuttable presumption that the transaction is not an excess benefit transaction as described in § 53.4958-6 of the Excess Benefit Transactions Excise Tax Regulations.” Revenue Procedure 2022-3.
  • Whether material changes will affect an organization’s tax-exempt status. Generally, tax-exempt organizations are required by the tax code to inform the IRS of “material changes” in their activities or operations. The IRS will no longer send PLRs to exempt organizations to address whether changes in activities or operations will jeopardize their exempt statuses. Revenue Procedure 2022-3. Whether a compensation or property transaction satisfies the rebuttable presumption that the transaction is not an excess benefit transaction as described in section 4958 of the tax code. Revenue Procedure 2022-3.

5. Simplified definition of a “highly compensated employee”

A number of tax-favored provisions in the tax code do not apply to “highly compensated employees” if they are treated more favorably than other employees. These include:
  • simplified employee pensions (SEPs),
  • 403(b) tax-sheltered annuities (churches and qualified church-controlled organizations are exempt from this nondiscrimination rule),
  • qualified employee discounts,
  • cafeteria plans,
  • flexible spending arrangements,
  • qualified tuition reductions,
  • employer-provided educational assistance, and
  • dependent-care assistance.
A highly compensated employee in 2022 was one who (1) was a 5 percent owner of the employer at any time during the current or prior year (this definition will not apply to churches) or (2) had compensation for the previous year (2021) in excess of $135,000 and, if an employer elects, was in the top 20 percent of employees by compensation.

6. Large drop in audit rates

On May 17, 2022, the U.S. Government Accountability Office (GAO) reported that the audit rate declined 44 percent between fiscal years 2015 and 2019, including a drop in the audit rate of 75 percent for individuals with incomes of $1 million or more, raising concerns about the potential for a decline in taxpayers accurately reporting their tax liability. (GAO-22-104960.)

The GAO Report found that, from tax years 2010 to 2019, audit rates of individual income tax returns decreased for all income levels. On average, the audit rate for these returns decreased from 0.9 percent to 0.25 percent. IRS officials attributed this trend primarily to reduced staffing caused by decreased funding.

Audit rates decreased the most for taxpayers with incomes of $200,000 and above. According to IRS officials, these audits are generally more complex and require a staff’s review. Lower-income audits are generally more automated, allowing the IRS to continue these audits even with fewer staff.

The report noted that, although there was a sharper decrease in audit rates for higher-income taxpayers, the IRS generally audited such taxpayers at higher rates compared to lower-income taxpayers. However, the audit rate for lower-income taxpayers claiming the earned income tax credit (EITC) was higher than average.

According to IRS officials, EITC audits require relatively few resources and prevent ineligible taxpayers from receiving the EITC.

With the passage of the Inflation Reduction Act (IRA) in August of 2022, the IRS and related agencies will receive nearly $80 billion through 2031 for tax enforcement activities, such as hiring more enforcement agents, providing legal support, and investing in “investigative technology.”

7. A trio of noteworthy court cases involving tax fraud, tax liens, and tax bills
  1. The Tax Court rejected a minister’s tax arguments, subjecting him to back taxes, interest, and a penalty for filing a frivolous return.
  2. A Florida case underscored the power of the IRS to impose tax liens on ministries.
  3. The Virginia Supreme Court sided with a church in a local tax delinquency case.

8. Inflation adjustments relevant for 2022 tax-filing season

Some tax benefits were adjusted for inflation for 2022. Key changes affecting 2022 returns include the following:
    • The mileage rate for miles driven for business increased to 65.5 cents per mile on January 1, 2023.
    • The mileage rate for miles driven for medical purposes, and for moving, remained 22 cents per mile on January 1, 2023.
    • The charitable mileage rate remains at 14 cents for all of 2023.
    • The Alternative Minimum Tax exemption amount for tax year 2022 increases to $75,900 for single taxpayers and $118,100 for married persons filing jointly. The exemption amount for single persons (and heads of household and married persons filing separately) begins to phase out at $539,900 and the exemption amount for married couples filing jointly begins to phase out at $1,079,800.
    • For estates of any decedent passing away in calendar year 2022, the basic exclusion amount is $12,06,000.
    • For 2022, the foreign earned income exclusion will be $112,000.
    • The maximum earned income credit amount will be $6,935 for taxpayers with three or more qualifying children for 2022.

9. Working after retirement

Many churches employ retired persons who are receiving Social Security benefits. Persons younger than full retirement age may have their Social Security retirement benefits cut if they earn more than a specified amount.

Full retirement age (the age at which you are entitled to full retirement benefits) for persons born in 1943 to 1954 is 66 years. If you are under full retirement age for the entire year, $1 is deducted from your benefit payments for every $2 you earn above the annual limit. For 2023, that limit is $19,560.

In the year you reach full retirement age, your monthly benefit payments are reduced by $1 for every $3 you earn above a different limit. For 2023, that limit is $51,960, but only earnings before the month you reach full retirement age are counted.

10. New per diem rates for substantiating the amount of travel expenses

The IRS allows taxpayers to substantiate the amount of their business expenses by using per diem (daily) rates. Taxpayers still must have records substantiating the date, place, and business purpose of each expense. Separate rates are set for meals and lodging, with separate rates for high-cost localities and all other communities. See the IRS website for applicable rates.

In some cases, using the per diem rates will simplify the substantiation of meals and lodging expenses incurred while engaged in business travel. However, a number of restrictions apply, and these are explained further in the latest Church & Clergy Tax Guide.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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Video

Finishing 2022 Well

Getting year-end tasks right–and setting up 2023 for success.

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The end of the year always brings a flurry of activities to church offices–between year-end giving, holiday bonuses, and 2023 budget plans, leaders can often feel overwhelmed. This free webinar, featuring attorney, CPA, and senior editor Richard R. Hammar from Church Law & Tax, is designed to reduce the stress and give leaders confidence heading into the new year.

Hammar provides key updates and reminders on a variety of fronts, including:

✔ How to correctly handle business expenses for pastors and staff;

✔ How to properly set minister housing allowances;

✔ How to document and process charitable contributions; and,

✔ How to identify and prepare the records and paperwork that ministers, staff members, and the church will need for the upcoming tax-filing season.

Watch now and learn how to finish the 2022 year-end well.

Speaker:

Richard R. Hammar | CPA & Attorney

Reading & Resources: 

Download the resources and templates mentioned in this webinar below. Or read one of the articles for more information that will help you finish the 2022 year-end well.

What the Respect for Marriage Act Means for Churches

Bipartisan law confirms and protects certain religious liberties.

Richard R. Hammar, Attorney, CPA
Bio

Congress recently enacted the Respect for Marriage Act (RMA) and it has two primary purposes.
Writing for Church Law & Tax, religious liberty scholar Thomas Berg says RMA offers potentially valuable protections for the future while attorney Erik Stanley urges caution.
  1. It requires the federal government to recognize
    a marriage between two individuals if the marriage was valid in the state where it was performed.
  2. It guarantees that valid marriages between two individuals are given full faith and credit, regardless of the couple’s sex, race, ethnicity,
    or national origin, but the bill would not require
    a state to issue a marriage license contrary to state law.These two purposes will have little, if any, effect on churches.

Dig a little deeper with the help of Church Law & Tax’s legal library to gain more insight on the clergy’s authority to perform marriages, along with the legal rights and requirements to do so. For full access to this and other critical resources, consider subscribing to Church Law & Tax today.

This conclusion is underscored by a bipartisan amendment to the RMA that:
    • Confirms that churches will not be required to provide any services, facilities, or goods for the solemnization or celebration of a marriage.
In a guest opinion column for Christianity Today, constitutional scholar and University of Missouri law professor Carl Esbeck called the RMA “a modest but good day’s work,” on the part of Congress while highlighting for readers several key characteristics of the legislation, including its religious liberty protections.
  • Guarantees that the Act may not be used to deny or alter any benefit, right, or status of an otherwise eligible person or entity – including tax-exempt status, tax treatment, grants, contracts, agreements, guarantees, educational funding, loans, scholarships, licenses, certifications, accreditations, claims, or defenses – provided that the benefit, right, or status does not arise from a marriage. For instance, a church’s eligibility for tax-exempt status is unrelated to marriage, so its status would not be affected by this law.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

2023 Webinar Schedule

FREE WEBINAR | Making Sense of Retirement for Church Leaders

Register Now!


Editor’s note. Only Advantage Members have access to this schedule. Learn more on how to become an Advantage Member or upgrade your membership.

Among the many benefits of your Church Law & Tax Advantage Membership is access to exclusive webinars.

During last year’s series, we hosted a handful of webinars exclusively for Advantage Members. For instance, attorney Sarah E. Merkle offered insights on how to run an effective church business meeting. In addition, attorney and CPA Frank Sommerville drew on his more than 30 years of legal and accounting experience to answer members’ employment law questions. You can watch these past webinars and others on demand.

This year, we plan to continue covering current events and topics that will help you lead your church and its various ministries with confidence.

Details and registration links to upcoming Advantage Member and free webinars will be added to this schedule throughout the year. Bookmark this page to stay updated when a new webinar is announced. You can also catch up on webinars you might’ve missed from this series here.

UPCOMING WEBINAR

We are currently making plans for our next webinar. In the meantime, we encourage you to catch up on our most recent webinar below. Also, be sure to check out any webinars you might have missed from this series. They are available to watch on-demand.

Watch this FREE webinar with Matthew Branaugh, Church Law And Tax attorney and content editor, and Attorney Danny Miller to discover retirement planning options available for church leaders, how to manage costs associated with those plans, and to ensure compliance with related rules and regulations. Watch Now.
Posted:

Free Webinar: Finishing 2022 Well

Reduce end-of-year stress and enter 2023 with confidence.

The Editors

As the end of the year approaches, church offices often feel overwhelmed with year-end giving, holiday bonuses, and budget planning for 2023. In this free webinar, attorney, CPA, and senior editor Richard R. Hammar from Church Law & Tax will reduce stress and provide leaders with confidence going into the new year.

Find out how you can finish the 2022 year well and ask questions that will help as you move into 2023, by registering for this exclusive event.

The webinar will cover key updates and reminders, including:

· How to correctly handle business expenses for pastors and staff

· How to properly set minister housing allowances

· How to document and process charitable contributions· How to identify and prepare the records and paperwork that ministers, staff members, and the church will need for the upcoming tax-filing season.
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Image: Getty Images

Mastercard Rolls Out New Standards for Recurring Billing

Understanding these standards is important for churches and church-run schools with sustainer donor programs.

Ted Batson, CPA and Tax Attorney
Bio

You may have heard that Mastercard was implementing new required standards for merchants that use subscription or recurring billing, which includes recurring gifts made to nonprofit entities, churches, and church-run schools.

However, after receiving feedback from merchants, Mastercard has now made the new standards best practices—not a requirement—for nonprofit and charity merchants, as long as those entities do not have excessive chargebacks.

Understanding these new standards is crucial for any church or church-run school with a recurring giving program (also known as a sustainer donor program), including which merchants must comply with the standards, what is required, and the potential penalties for noncompliance.

For those who may wonder, these new standards do not stem from a government regulation. They are a contractual matter with Mastercard and only apply to donations that automatically recur. For example, a one-time gift made by using the “donate” button on a church or school’s website would not be considered a subscription payment.

Furthermore, there has been no indication that other payment processors plan to follow Mastercard’s lead and implement similar required standards.

The back story

On June 14, 2022, Mastercard introduced Transaction Processing Rules that include new standards, outlined in Section 5.4.1, for subscription billing.

While the Transaction Processing Rules state that these standards apply to “subscription billing in which the Cardholder has agreed for the Merchant to provide ongoing and/or periodic delivery of physical products or Digital Goods,” Mastercard later clarified that this includes recurring donations made to nonprofit and charitable organizations.

While the new standards went into effect on September 22, 2022, Mastercard extended the effective date to March 21, 2023, for nonprofit organizations.

In October, Mastercard then announced that, effective October 11, 2022, only nonprofits and charity merchants with excessive chargebacks will be required to comply with the new standards.

Noncompliance is costly

Under the modified requirements, all the standards described below that took effect on September 22, 2022, are recommended as a best practice for nonprofit and charity merchants with a recurring payment program.

However, the standards become a requirement if a nonprofit or charity merchant that uses a recurring payment plan is placed into Mastercard’s Acquirer Chargeback Monitoring Program (ACMP) as an Excessive Chargeback Merchant, High Excessive Chargeback Merchant, or Excessive Fraud Merchant for at least four months. (Mastercard offers a “Data Integrity Monitoring Program” module as well as an updated, downloadable rules document.)

Organizations in the ACMP for at least four months or more that do not implement the required standards may be subject to a costly Category A noncompliance assessment each month, in addition to the assessments applicable under the ACMP.

A Category A noncompliance assessment can be up to $25,000 for the first violation and increase with each subsequent violation, up to $100,000 per violation for the fourth and subsequent violations within 12 months. More information about Category A noncompliance assessments is available in Section 2.1.4 of the Mastercard Rules.

The new, recommended standards entail:
  • Disclosing the donor’s selected donation amount and frequency when requesting credit card information as well as on any payment and order summary webpages and asking donors to accept the subscription terms before completing the donation.
  • Sending a subscription confirmation at the time of enrollment in recurring giving. The confirmation should include the terms of the subscription (the recurring donation) and instructions on how to cancel it.
  • Providing an electronic receipt after every successful billing. This should include instructions on how to cancel the subscription (the recurring donation).
  • Providing an online cancellation method or clear instructions on how to cancel that are “easily accessible online,” such as through a “Cancel Subscription” or “Manage Subscription” link on the organization’s home page.
  • For recurring payment plans that bill less frequently than every six months (180 days), sending an electronic reminder outlining the terms of the subscription (the recurring donation) and instructions on how to cancel the subscription or recurring donation 7 to 30 days before the next scheduled billing date. The communication should reference in the subject line that it relates to upcoming charges, and the message should be distinct from marketing communications.

In its statement about the revised standards, Mastercard said that it changed the requirements after engaging with merchants and recognizing that “some of these requirements present unique challenges to merchants that have found other effective ways to manage their subscription and recurring payment model.”
Ted R. Batson Jr. is a CPA and tax attorney, and serves as a partner and Professional Practice Leader – Tax for CapinCrouse LLP, a national CPA and consulting firm. He speaks and teaches frequently for national conferences and organizations on exempt organization and charitable giving matters.
Video

Advantage Member Exclusive

Get Answers to Your Church’s Most Pressing Employment Law Questions

On-Demand Webinar: Attorney and CPA Frank Sommerville addresses key questions—including yours—about churches as employers.

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Every day, churches face a variety of employment issues. Many questions arise regarding employee classifications, overtime regulations, workplace accommodations, hiring and firing protocols, etc. It seems as if the list is endless.

Though the list is long, church leaders can also avoid many of the most pressing and common employment issues that face their congregations. In this exclusive webinar for Advantage Members, you’ll learn helpful information that will assist you in preparing answers to these frequently asked questions.

Senior editorial advisor for Church Law & Tax, attorney Frank Sommerville, provides insight into Title VII and FLSA in light of their impact on churches, as well as answer employment-related questions submitted by Advantage Members.

Watch now and learn how to address employment matters your church faces.

Speaker:

Frank Sommerville | Attorney

Reading & Resources: 

Download the resources and templates mentioned in this webinar below. Or read one of the articles to get a handle on the basics of developing fair compensation in your ministry.
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