Congress ended 2017 by passing the largest tax bill in over 31 years. While many call this tax reform, in reality it was just tax legislation. On the positive side, the Benefits Board, with assistance from some of our Administrative Bishops and pastors across the country, was able to make substantial in-roads on protecting many of the tax provisions that dealt with our retirement plan and ministers in general.
Highlights of Tax Reform
While this is very complicated legislation and contains provisions that will not be fully understood for months and maybe years to come below is a list of just a few of the highlights of the bill that impact ministers and churches:
- Outside of a few provisions, the bill only applies after January 1, 2018
- There are seven tax brackets, ranging from 10%-37% (formerly 10-39.6%)
- Standard deduction (married filing jointly) increased from $12,700 to $24,000
- Personal exemptions ($4,050 per person) were eliminated
- Child tax credit was enhanced
- State and local tax deduction limited to $10,000
- Mortgage interest limited to houses valued below $750,000
- Home equity interest is no longer deductible
- No miscellaneous itemized deductions allowed
- Qualified moving expenses paid by employer is now taxable income – and there is no exclusion for overseas transitions
- Section 529 plans can now include elementary and secondary education
Impact on Charitable Giving
There has been much discussion about the impact of the tax reform bill on charitable giving. Most of the discussion is speculation at this point. However, because the standard deduction has been increased so drastically, many former itemizers will no longer find it advantageous to itemize – and end-of-year giving will most likely drop off. Consider these statistics from Charity Navigator:
31% of annual giving to churches and non-profits occurs in December.
12% of annual giving to churches and other non-profits occurs on the last three (3) days of the year
Some have emphasized that donors to churches give not to just get a tax break but out of a commitment to God and the church. While it is agreed that such is true during regular giving cycles, the end-of-the-year giving seems to be primarily dependent upon getting a charitable deduction.
Due to the potential drop off in giving at year-end because of the new tax bill, it is suggested that churches, state/regional offices, and other non-profits plan their annual budgets without the historical December “bump.” For many churches, giving in December increases some 50% over an average month. It would be wise not to plan for such an increase in coming years.
With the individual tax rate changes, all withholding amounts for employees should be reviewed. On January 11, 2018, the IRS released Notice 1036 (https://www.irs.gov/pub/irs-pdf/n1036.pdf) that detailed withholdings under the new tax tables. In addition, by mid-February an on-line calculator is supposed to be available to allow employers and employees to check withholding rates to make sure such is sufficient. Although W-4 withholding forms are based upon personal exemptions that were eliminated by this new legislation, the IRS is recommending that the old W-4s be used until such time as new W-4s are available later this year.
All church treasurers and pastors should pay close attention to the changes required by the new tax legislation. If not, such could result in either over-withholding or under-withholding of tax liability.