Unconstitutional Housing Allowance Decision Appealed

On October 6, 2017, a federal district court judge in Wisconsin ruled that the ministerial housing allowance violates the Constitution. Judge Barbara Crabb held that Section 107(2) of the Tax Code, the provision that specifically addresses the “cash” ministerial housing allowance, violates the Establishment Clause of the First Amendment, simply because it does not have a secular purpose or effect, and because it singles out “ministers of the Gospel” for special tax treatment not available to others.

The ruling only deals with the housing allowance where ministers are provided cash to rent or purchase a home, and leaves fully intact, at least for now, the tax-free use of parsonages.

Although Judge Crabb ruled that the ministerial housing allowance was unconstitutional, she did not immediately implement a ruling as to what was supposed to happen next. In a follow-up order dated December 13, 2017, Judge Crabb issued an injunction that prohibits the government from enforcing Section 107(2) of the Tax Code. Simply stated, the injunction prohibits the Internal Revenue Service from allowing ministers to claim the housing allowance as an exclusion from income. However, as expected, the judge “stayed” the injunction until “180 days after the conclusion of any appeals.” Therefore, if the decision is upheld on appeal, the order mandates that the injunction will become effective 180 days after the appeal process is completed in order to allow an orderly transition. The judge noted that “the additional time will allow Congress, the IRS and affected individuals and organizations to adjust to the substantial change.”

On February 8, 2018, the unconstitutional determination was appealed to the Seventh Circuit Court of Appeals in Chicago, continuing a legal battle that ultimately could end up before the U. S. Supreme Court. At the appropriate time in the appeals process, it is expected that the Church of God International Offices and the Church of God Benefits Board will file a “friend of the court” brief in support of maintaining the housing allowance for both active and retired ministers.

Since the injunction has been stayed, and until a final decision has been entered, churches should continue to follow normal procedures in setting a housing allowance for their ministers.

Posted in 02 - February 02, 2018, Ministerial Housing Allowance | Leave a comment

Remember New Filing Date for W-2s and 1099s

Although we are only a few weeks into the new year, church treasurers hopefully have already given W-2s to employees, Form 1099s to independent contractors, and charitable receipts to all that contributed more than $250 at any one time to the church over the past year. All of these tasks are critically important and should be accomplished immediately.

With a change in the law (Public Law 114-113), it is now more important than ever that these tasks be completed as quickly as possible. Historically, an employer/church has been required to provide its employees with a W-2 prior to January 31 – and to provide a 1099 by January 31 to independent contractors who cumulatively received more than $600 over the course of the year. These provisions and requirements have not changed.

However, previously a copy of the employer’s W-2s and 1099s did not have to be sent to the Social Security Administration and Internal Revenue Service until later. If you were sending paper copies, they had to be sent by the end of February and if you were filing them electronically, you had until the end of March to transmit those forms. This delay allowed employers to correct W-2s and 1099s before they were filed with the government.

Under the change in the law, these forms now must be transmitted to the Social Security Administration (W-2s) and to the Internal Revenue Service (1099s) by the end of January. Therefore, all W-2s and Form 1099s must be forwarded to the individuals AND to the appropriate governmental agency by no later than January 31.

Because of this change, it is recommended that you get the W-2s and 1099s out to the individuals as early as possible so that changes, if necessary, can be made prior to the mandatory filing date of January 31.

Further, church treasurers should consider using the government’s electronic filing system (https://www.ssa.gov/employer/) to complete both their W-2s and W-3. After a simple registration process, W-2s can be completed, printed, and then filed electronically.

Just remember that if you wait to file your W-2s and 1099s with the government in February or March, you will be late. The new deadline is January 31.

Posted in 01 - January 2018, Internal Revenue Service, Tax Information | Leave a comment

Impact of Tax Reform Bill on Ministers and Churches

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.

Tax Withholdings

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.

Posted in 01 - January 2018, Internal Revenue Service, Tax Information, Uncategorized | Leave a comment

Board Manuals Updated for 2018

With each New Year comes new rules and 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 2018. From the Board’s web site, you can access the latest version of each of the manuals. The topics addressed are as follows:

  • 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

Each manual, ranging in length from 25 to 75 pages, is available without cost on the Board’s web site. The manuals may be used by the local church and church officials to address the everyday issues that face most churches. Please forward any questions or comments about the manuals to info@benefitsboard.com.

Posted in 01 - January 2018, 2018, Uncategorized | Leave a comment

IRS Announces 2018 Standard Mileage Rates

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 2018.

Beginning January 1, 2018, the standard mileage rate for the use of a car for business purposes will be 54.5 cents per mile for business miles driven – an increase of 1 cent per mile from the 2017 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 next year.

Posted in 12 - December 2017 | Leave a comment

Year-End Contributions to Churches

As we approach the end of each year, there are always questions about the tax deductibility of charitable contributions made to local churches. The rule is relatively simple – donors must deliver or mail (with the postmark visible) checks on or by December 31 in order to claim a charitable contribution deduction for 2017.

Checks presented to the church in early 2018 regardless of when the check was actually written or dated, will not qualify as a charitable contribution in 2017. The only exception, as noted above, is when the check was written, mailed, and postmarked in 2017.

Therefore, potential donors looking for charitable contribution deductions in 2017 should make sure that their contributions are in the hands of the church on or prior to December 31st. By taking this simple step, all the confusion is removed – and the church secretary or treasurer does not have to decipher postmarks on your envelope. So, give big on New Year’s Eve – Sunday, December 31st.

Posted in 12 - December 2017, Charitable Gifts | Leave a comment

Board Grants Year-End “Bonus” to Participants

In the recent meeting of the Board of Directors of the Church of God Benefits Board, the entity charged with managing the Ministers’ Retirement Plan, action was taken to grant a special year-end interest allocation to all participants in the Trustees’ Fund.

Because earnings in the Trustees’ Fund were better than anticipated in 2017, this one-time allocation of interest was approved by the board to be distributed on December 20, 2017. Each participant with an investment in the Trustees’ Fund will receive a special interest allocation on a pro-rata basis. The allocation is expected to amount to about 1% of the participant’s investment in the Trustees’ Fund. For example, a participant with $1000 in the Trustees’ Fund will have approximately $10 in interest added to their account while a person with $100,000 in the Trustees’ Fund will receive approximately $1000. The pro-rata amount that each person receives will be based solely on the amount that person has invested in the Trustees’ Fund – and will not take into consideration the balances in the equity investments.

In making this announcement of the special year-end interest allocation, Board Chairman Mark Walker also announced that the return on the Trustees’ Fund for 2018 will continue to be at four (4%) percent. In a time when fixed return rates remain at a historical low, the Board determined that it was extremely fortunate that the Ministers’ Retirement Plan can continue to pay at a rate that greatly exceeds the market rate. While the Board has projected the rate for the Trustees’ Fund to remain at four percent in 2018, it is possible that the rate could change based upon market conditions. If the economy recovers more quickly than anticipated, the rate could be increased. Conversely, if the economy were to falter, the Board could lower the rate during the year if such became necessary.

Since the retirement plan is a non-profit entity, all earnings, outside of an allowable reserve, must be passed on to participants. With earnings greater than expected in 2017, the one-time allocation became the fastest and most economical way to make those additional earnings available to participants.

Chairman Walker also announced that the board would still offer the incentive bonus for new participants who join the plan in 2018. For any new participant who joins in 2018, the plan will match dollar for dollar the contributions made in 2018, up to $500 per participant.

Participants are reminded that they may invest in three other options besides the Trustees’ Fund. The other options are all based upon stock funds and fluctuate with the stock market. Your ability to withstand volatility should be taken into consideration before making any investment selection. Further, you should always remember that past performance is not a guarantee of future performance.

Posted in 12 - December 2017, Investments | Leave a comment