Tax law for churches and clergy are unique and sometimes complex. For instance, are ministers employees or self-employed? Typically, they're both, and that's where the confusion sets in.
In this download, we cover five tax trouble spots for churches: designating housing allowances, payroll tax withholding, love gifts to ministers, substantiating the business use of a cell phone, and differentiating whether a minister is an employee or self-employed.
Designating a Housing Allowance
The most important tax benefit available to ministers who own or rent their home is the housing allowance exclusion. Unfortunately, many churches fail to designate a portion of their minister's compensation as a housing allowance, thereby depriving the minister of an important tax benefit. Housing allowances must always be made in advance of receiving the benefit, never retroactively, and they should be put in writing, such as in an employment contract, in minutes during an official church meeting, or as part of the church's budget.
Understanding Payroll Tax Reporting Rules
Payroll tax reporting is one of the weakest areas for churches when it comes to complying with federal requirements. Church leaders may incur personal liability for the handling of payroll taxes, so its imperative that churches understand what their reporting obligations are.
Receiving Love Gifts
Churches and their members often desire to show their pastors appreciation with gifts. But "love gifts" create taxable income for ministers. Ministers need to know how to properly report gifts.