New Changes to Overtime Rules Adopted

Many church leaders think that the “wage and hour” laws, and particularly overtime pay rules, do not apply to churches. That could not be further from the truth. Churches and church employees are NOT exempt from the “wage and hour” laws – and failure to obey such could result in substantial penalties to the church. To get around these laws, many churches have often wrongly “exempted” their employees from the law.

However, in August 2023, the U.S. Department of Labor issued “proposed” regulations concerning who will be eligible for overtime under the Fair Labor Standards Act (FLSA). These new regulations, finalized by the Department of Labor on April 23, 2024, will take effect on July 1, 2024 followed by another increase on January 1, 2025. It is expected that the new regulations will have a substantial impact on churches and other non-profit entities.

Before reviewing the changes in the regulations, it is important to understand the foundation of the Fair Labor Standards Act. The FLSA requires that workers be paid the federal minimum wage (or a higher wage if the local jurisdiction or state has mandated such) for the first 40 hours worked in a regular work week. Further, for any hours worked past 40 hours in a regular work week, the FLSA requires that most employees be compensated at time and a half of their regular hourly wage.

To be exempt from this “time and a half” overtime pay rule, the employee has to be classified as an executive, administrative, or professional employee – often called the “white collar” exemptions. Each category of exempt employees is defined specifically under the FLSA. However, not only do you have to meet the definition for an executive, administrative, or professional employee, but previously you had to be paid a salary of at least $684 a week ($35,568 for a full-year worker). Under the new regulations that will go into effect on July 1, 2024, the minimum salary threshold to be an exempt worker increases to $844 a week ($43,888 for a full-year worker). Another increase will follow on January 1, 2025, with the weekly amount increasing to $1,128 per week ($58,656 for a full-year worker).

For example, assume that a church has an employee, such as the director of the church’s daycare, that they have designated as being exempt under the Fair Labor Standards Act as an “executive” because the person supervises more than two people, her position is primarily managerial, and she has genuine input into the job status (hiring, firing, promotion, etc.) of the employees she supervises. This person has been making $40,000 a year and averages working 50 hours a week at the church. Since the new regulations do not go into effect until July 1, 2024, the church is currently in full compliance with the law. However, after July 1, this person, even though they remain an “executive” and can be paid a salary, must be paid “time and a half” for any hours worked over 40 hours in a regular work week, simply because her annual base salary does not meet the new minimum annual salary of $43,888. 

With the new rules, it is important to remember the following:

• An employee, whether classified by the church as exempt or not, can be paid a salary and still be subject to the new overtime rules.
• Even a worker that meets the criteria of being designated an executive, administrative, or professional employee must be paid overtime (time and a half) if they are compensated at less than $844 a week after July 1, 2024.
• Overtime for this purpose is considered to be any hours worked in excess of 40 hours in a regular work week.

Any time there is a change to the overtime rules, there are always questions about the applicability of the new regulations to ministers. In other words, if a minister works more than 40 hours in a week and does not make more than $43,888 in taxable income in a year, will a church have to pay the minister time and a half? 

While ministers are not statutorily exempt from FLSA requirements, several courts over the years have found that clergy are exempt under the “ministerial exception” – in other words, ministers performing religious functions are excluded from the definition of employees under the FLSA. The Department of Labor in a 2005 opinion letter seemed to recognize this exception as well.

Should you have questions about the applicability of these rules to your employees, it is recommended that you check with a qualified employment attorney and seek professional advice regarding your situation immediately.

IRS Stops Processing of New ERC Claims

On September 14, 2023, the Internal Revenue Service announced that it would immediately halt the processing of new Employee Retention Credit (ERC) claims through at least December 31, 2023. This moratorium is due in large part to the IRS’s belief that new ERC claims are largely “dubious” and the IRS believes that it needs more time for enhanced review of those claims.
 
This latest action by the IRS is further confirmation of its commitment to crack down on ineligible and even fraudulent claims that are made on the pandemic-era program. The IRS also reiterated its warning against aggressive promoters of the ERC who take a contingency fee from the organizations’ ERC claims. The IRS has already initiated over 250 criminal investigations into aggressive ERC companies, and 15 of those criminal investigations have resulted in federal charges being filed.
 
The IRS also provided several links for organizations that need help determining eligibility for the ERC, including a new question and answers guide that acts as a decision tree for organizations exploring the ERC or wanting to determine whether their claims are valid. The entire IRS Notice is available at https://www.irs.gov/newsroom/to-protect-taxpayers-from-scams-irs-orders-immediate-stop-to-new-employee-retention-credit-processing-amid-surge-of-questionable-claims-concerns-from-tax-pros.  
 
Depending on where your church is in the ERC process, the following suggestions are offered:

• If you have already made an ERC claim, have received your funds, and are now wondering if you were eligible – You should reach out to a trusted tax professional for an objective assessment of your eligibility. If you determine that you were ineligible for part or all of your ERC claim, the IRS is in the process of creating a settlement program for taxpayers who made an ERC claim that they believe to be in error. The IRS has announced it will provide more details this fall on the “payback” process.
   
• If you have already made an ERC claim, have not received your funds, and are now wondering if you were eligible – It is recommended that you still reach out to a trusted tax professional to determine whether your claim is eligible. Then, if you determine that you are ineligible for some or all of the claim, you may withdraw the claim while it is being processed.
  
  The IRS noted that payouts for existing claims will continue during the moratorium period, but at a slower pace due to detailed compliance reviews. The standard processing goal will increase from 90 days to 180 days (or longer if the IRS determines that the claim warrants further review or audit). 
   
• If you have not yet made an ERC claim – You must wait to submit your claim until the moratorium on processing the ERC is lifted, which will be at least December 31, 2023. The date could be extended into 2024, depending on how long it takes the IRS to engage in its enhanced review of current ERC claims. The IRS recommends that you work with a trusted tax professional to determine eligibility before submitting an ERC claim.

If your church IS eligible for the ERC, you should certainly keep the funds provided or keep your application for funds active. However, we have repeatedly suggested that you use a local accounting firm that provides services to non-profits to assist you in your application for ERC credits. Problems have arisen because many contingency fee companies, not well versed in tax laws, have popped up to “help” churches claim this credit without adequately training or supervising their employees. Because these companies get a fee based upon how much the church gets from the government, some have “stretched” the numbers to recover a larger amount from the government – and thus a larger fee for themselves.

Regardless of how reputable the contingency fee company is that you used, it is recommended that you have a trusted certified public accounting firm review your ERC application to make sure that proper credits were claimed. If it is determined by the IRS that you wrongly claimed ERC, the church will be required to return the excess funds, pay interest on the money, and a substantial penalty. If the claims were blatantly false, the IRS could also file civil or criminal fraud charges as well.

It must be remembered that the ERC does NOT apply to wages of ministers. Only FICA employees are included in the calculation of the ERC credit.

NOTE: Portions of this article were provided by CapinCrouse, a national accounting firm that specializes in non-profits and churches.

Tax Exemption for Church Property

More and more, we are seeing situations where church property has been sold for delinquent property taxes. When the church realizes that their property is now owned by someone else due to their failure to pay property taxes, the first statement made is “we thought our church property was tax exempt!” While it may potentially be tax-exempt, each state requires different ways to obtain that exemption – and keep it. In some states, you simply have to apply for exemption when the property is acquired and no additional action is ever required again. However, in other states you may be required to have church property re-certified as exempt ever year or every few years.
 
So, is your church property tax exempt? As a nonprofit, most church property qualifies for exemption based on ownership and use of the property. However, as just noted, you may have to take affirmative action on a regular basis to keep the property exempt from taxes.
 
It is recommended that you review your church’s tax-exempt status annually. While property taxes and exemptions vary by state, the first of each year is typically a great time to make sure applications for exemption are done and renewals are up to date.
 
A few suggestions concerning church-owned property:

• Determine whether or not your church property was tax-exempt last year, based on its nonprofit status. If not, visit your local tax office or their website to see if you may qualify for exemption and complete the application process for future years. However, do not forget to pay the taxes owed if the property was not exempt.
• To maintain tax-exempt status, confirm there have been no changes to the use of your church property and update any renewal documentation required by your state. Be aware that if you lease out some of your church property, it will most likely lose its’ tax-exempt status.
• If you purchase new property, determine tax-exempt filing requirements and due dates immediately, and then complete the application process as dictated by your local tax assessor.
• If taxes are owed on church-owned property or if the property has been sold at a “tax auction,” it is critical that you act quickly. You will most likely have only a limited time to “redeem” the property.

This simple checkup could potentially save your church hundreds, if not thousands, of dollars in tax liability. It should be noted that most states will not apply tax exemption retroactively. Therefore, it is critical this is kept up to date and made a priority each year.

Board Manuals Updated for 2023

With each New Year comes new rules, new regulations and new contribution limits. Therefore, all the Benefits Board’s free educational manuals have been updated to take into consideration all relevant changes for 2023. You can access the latest version of each manual from the Benefits Board website. The topics covered are:

• Church Construction and Financing Manual
• Ministers’ Retirement Plan Document Summary
• Church Treasurer’s Manual
• Minister’s Compensation Manual
• Church Budgeting Manual
• Tax Information Manual
• The Church as a Taxpayer Manual
• Church Loan Fund Policy Manual
• Preparing Tax Returns for Clergy Manual (ECFA)
• Reporting Procedures for Congregation Manual (ECFA)

All manuals are available without cost and may be used by the local church and church officials to address the everyday issues most churches face. Please forward any questions or comments about the manuals to info@benefitsboard.com.

Are You Prepared for the New Year?

As we begin a new year, we must carefully evaluate whether we are financially prepared for what lies ahead in 2023. Although there were some warning signs a year ago, no one predicted that we would see the financial trauma that the markets experienced in 2022. Interestingly enough, the first trading day of the year was extremely positive – and ended up being the high point for 2022. From that day forward, the markets struggled to keep from having a massive meltdown.
 
When the stock markets closed for 2022, we had experienced the worst year for all market indexes since the Great Recession in 2008. For the year, the Dow was down 8.8%, the S&P 500 was down 19.4%, and the tech heavy NASDAQ index was down 33.1%.
 
Some of the high-flying stocks from previous years reversed course and led the downward trend. A once safe haven stock, Apple, lost 27%, while previous soaring Tesla finished the year off 65%.
 
While the stock markets were experiencing their worst year in more than a decade, mortgage rates were increasing at the largest annual rate on record. A 30-year mortgage started the year at 3.1% but ended 2022 at over 6.4%. On a $350,000 home, that increase in mortgage rates cost the average homeowner $695 a month.
 
Fueled by government stimulus during the Covid pandemic and additional supply chain disruptions, inflation reached the highest level in over 40 years, topping out at 9.1% in June 2022. By November, the Federal Reserve’s massive efforts to bring inflation under control were working to a limited extent and inflation had dropped to 7.1%. However, inflation remains a concern, and many economists predict that seeing further substantial gains in reducing inflation in 2023 will be difficult.
 
With rising prices in fuel, food, and other essential items, the consumer faced a difficult 2022. The hope is that 2023 will bring a much-needed recovery.
 
On the positive side, the Board of Directors of the Ministers’ Retirement Plan set the projected payout on the Trustees’ Fund at 4.00% for 2023. Since the financial crisis in 2008, the board has adhered to the projection of 4.00% return on the Trustees’ Fund. In some years, when the markets have performed better than expected, the board has been able to provide an interest rate bonus to participants in the Trustees’ Fund. Over the 40-year history of the Trustees’ Fund, the average rate has been 6.65%.
 
While it is impossible to predict how the stock markets will perform in 2023, most prognosticators are suggesting that it is going to be another trying year for the markets. It seems as though we may be in a cycle where the return of your money is more important than what return you get on your money. Safety seems to be paramount in investing at this point.
 
Of course, if you have many years before retirement, there are going to potentially be some great buying opportunities in the next 12 months. Buying stocks while they are depressed is certainly a way to build your portfolio, assuming we have recovery in the years ahead. On the other hand, those who are nearing retirement should begin to look at the safety of their portfolio and reduce the risk that they are taking in their investment strategy.
 
As we often say, there is no perfect investment strategy that applies to everyone. Each person, based upon age, risk tolerance, and a variety of other factors, will have different investment strategies and goals.
 
As we begin this new year, my hope is that you will evaluate your retirement contributions and your investment goals in hopes of reaching your preferred future. The staff at the Benefits Board stands ready to assist you in any way possible towards that end.
 
On a lighter note, my hope and resolution for you is that our lives are as great as our Facebook posts make them look. Blessings for a great 2023!!

IRS Announces 2023 Standard Mileage Rate

The Internal Revenue Service recently issued the revised standard mileage rate which is used to calculate the deductible costs of operating an automobile for business purposes during 2023.
Beginning January 1, 2023, the standard mileage rate for the use of a car for business purposes is 65.5 cents per mile for business miles driven – an increase of 3 cents per mile over the 2022 mid-year adjusted rate. The standard mileage rate is based on an annual study of the fixed and variable costs of operating an automobile.

Churches that follow an accountable reimbursement plan should use the new rate to budget expenses for 2023.

Claiming Your Social Security Benefits

NOTE: The following article is provided by Victor Boltniew, MBA, CRPC, IAR. For over 28 years, Victor has helped retirees in the Cleveland, TN area determine when they should start receiving their Social Security benefits. Victor has provided this article as a service to the participants in the Ministers’ Retirement Plan, managed by the Church of God Benefits Board, Inc.

For your long-term financial welfare, it is critically important when you choose to start collecting Social Security retirement benefits. For a majority of retirees, Social Security benefits provide most of their retirement income. According to the National Institute for Retirement Security, 40.2% of retirees live only on Social Security, while a recent Gallup survey showed that for 57% of retirees, a majority of their income comes from Social Security. Even if you have contributed to the Ministers’ Retirement Plan a good portion of your ministry, Social Security could still make up between 40 to 60 % of your retirement income. Therefore, when you elect to start collecting Social Security benefits is an important financial decision. 

The question is always asked, should I collect Social Security as early as possible so I don’t miss out on any benefits if I die early? For retirees born after 1954, a person that starts drawing benefits when they turn 62 will draw less than 56% of what they would if they waited to start Social Security benefits at age 70. The percentage is slightly higher for those born prior to 1954. For couples in which one spouse will live to age 90 and will file on their spouses’ work record, taking Social Security at age 62 could mean between $100,000 and $200,000 less in lifetime benefits (based on a 62-year-old drawing a $1,000 per month). The estimated loss does not include cost of living adjustments on the higher amounts. For example, in 2023 it might be the difference between having an 8.7% cost of living adjustment on $12,000 a year versus $21,120 a year.

I am repeatedly asked to do a break-even analysis on whether a person should draw earlier or wait until they are 70 years of age. Some people are concerned about what Social Security benefits they may lose out on if they get their eternal reward early. If you are single, you may want to consider drawing early! The issue isn’t if you die early and collect your eternal inheritance. It is whether you tarry and stay as an ambassador longer than you or your spouse expected. Usually, if there is one spouse that is going to draw a substantially higher amount and one is expected to live beyond 82, the higher earner should delay drawing Social Security benefits as long as possible, but not past the age of 70. Software is available to show you options and can help you determine when the lower earner should begin drawing.

One mistake often made is filing for benefits prior to full retirement age, continuing to work or going back to work without informing the Social Security Administration, and exceeding the earnings limit. If this occurs, the Social Security Administration will send an overpayment notice, wanting excess benefits repaid because the worker exceeded the annual earnings limit. If you take Social Security benefits prior to your full retirement age, you are required to pay back $1 for every $2 of earnings over the earnings limit. Once you reach full retirement age, you can make as much as you desire and draw your full Social Security benefits, without limitations.

There is also a misconception that a spouse can file for benefits on your Social Security work record prior to you filing for benefits. In reality, the worker must file before anyone can file a claim on their record (spouse or a dependent child). The only exception to this rule is an ex-spouse who is at least 62 and who was married to the worker for 10 years, is currently unmarried, and who has been divorced from the worker for at least 2 years before filing the claim for benefits.

In this limited space, I have only been able to address some of the bigger issues that arise concerning claiming Social Security benefits. If you have more questions concerning your specific situation, you may email me at Victor@retirewithvictor.com. (Please note that a fee may be charged for detailed analysis.)

I am at your service and would love to help you with your Social Security questions.  

Victor Boltniew, MBA, CRPC, IAR

IRS Changes Mileage Rate

In an unusual, but expected, move, the Internal Revenue Service recently announced that they are raising the allowed reimbursement rate used for calculating business miles in private vehicles. Effective July 1, 2022, the new mileage rate will be 62.5 cents a mile, up from 58.5 cents a mile. 

The IRS also announced that the moving costs and medical expenses rate would increase from 18 cents a mile to 22 cents a mile.

The changes are a reflection of higher fuel costs and the current inflationary impact on automobile travel. Although it has occurred a few times, it is highly unusual for the IRS to make such a mid-year change.  

“With gasoline prices now well over $5.00 per gallon on average nationwide, the IRS recognized that employees were in desperate need of relief. This increase to 62.5 cents per mile will hopefully make up some of the difference of the increased costs of a pastor or church employee using their vehicle for church business purposes,” stated Art Rhodes, President and CEO of the Church of God Benefits Board, Inc. While recognizing that not all churches can pay the higher mileage amount, Rhodes went on to encourage churches to make this change, if possible, beginning July 1. Church budgets may need to be modified to cover these, and a host of other, increased costs.

Additional information about business expense reimbursement can be found in the Church Treasurer’s Manual and the Minister’s Compensation Manual, both available without cost at www.benefitsboard.com. 

Public Service Loan Forgiveness (PSLF) for Ministers and Church Employees

New legislation passed in July 2021 extended the Public Service Loan Forgiveness to the student loans of ministers and other employees of non-profit, faith-based entities, including churches.  Therefore, under the Public Service Loan Forgiveness (PSLF) Program, ministers and church employees are afforded the opportunity to qualify for student loan forgiveness after reaching certain qualification levels, generally after making payments for 10 years. 

The Church of God Benefits Board, in partnership with the Church Benefits Association and Church Pension Group, hosted a webinar last month highlighting the qualifications of the PSLF program and how ministers and church employees can apply for student loan forgiveness under the program.  For those who were unable to attend, or for anyone who would like to watch the presentation again, a recording of the webinar is now available via our website.  To access, click on the Resource tab, then Public Service Loan Forgiveness.  Additional information, including the PowerPoint presentation and a resource list on the PSLF program, are available on our site. 

Should you have any questions regarding the PSLF Program, you can visit the government’s website directly at https://studentaid.gov/manage-loans/forgiveness-cancellation/public-service.

IRS Announces 2022 Standard Mileage Rate

The Internal Revenue Service recently issued the revised standard mileage rate which is used to calculate the deductible costs of operating an automobile for business purposes during 2022. 

Beginning January 1, 2022, the standard mileage rate for the use of a car for business purposes will be 58.5 cents per mile for business miles driven – an increase of 2.5 cents per mile over the 2021 rate. The standard mileage rate is based on an annual study of the fixed and variable costs of operating an automobile.

Churches that follow an accountable reimbursement plan should use the new rate to budget expenses for 2022.