For those of us that are a little older, we remember when the pastor was on the denomination’s health insurance, and the only other health benefit was if the church decided to reimburse an employee for premiums. And then Obamacare happened. Obamacare changed a lot of things. One of the negative changes is that these very informal reimbursement agreements became taxable. Soon after the election of President Trump, a loophole opened up that allows reimbursements in a very regulated way. This loophole is QSEHRA (I pronounce it Q-Sara).
Here’s the gist of it.
Almost all churches can use this.
Need to offer the same amount to all eligible employees (except can discriminated based on age and family status).
Need to adopt a Plan Document (template below in the links).
During the first three months of the COVID crisis, the big concern was if churches were going to have enough money to keep operating…to pay their pastor, utilities, and mortgages. As time goes on, many churches are finding out that their finances are doing great all things considered. Now that they are able to catch their breath, they may want to thank their pastor with more than words or a card, or even a hot dish.
The CARES Act allows you to make payments toward your employees’ student loans (including your pastor’s) with tax-free money! I love the phrase “tax free.” This is only available during 2020. You still have to jump through some hoops, but it’s not too bad. The video will explain it.
I had been wringing my hands at how difficult the SBA made the first Paycheck Protection Program Loan (PPP) Forgiveness Application. It was like they had asked the IRS for advice. The EZ application cuts it down to only one page of numbers. Without a doubt, your bank will be asking you for more proof, but why would you make it so complicated to ask “How much of the loan did you spend?” That isn’t something that you need pages of worksheets to answer.
The vast majority of churches should qualify for the EZ application. I would also guess that the vast majority should choose the 24-week period instead of the 8-week to maximize forgiveness. Watch the video below for the walkthrough:
Another topic I regularly teach is Accountable Reimbursement Plans. I used to think of this as a pretty straight forward topic, but I’m an accountant. I think in accounting rules…debits, credits, etc. The best part of this presentation is that chart for figuring out if mileage is commuting or business. This would also be a good one for church treasurers to review as they also have the same questions.
There are few things more confusing than Clergy Taxes. I do a webinar annually to train new clergy on what they should know about Clergy Taxes. I had the help of a few experienced pastors on this (Jenny Hallenbeck Orr, Karl Kroger, and Jen Tyler).
Long story short, Clergy Taxes are so confusing because pastors are considered both self-employed and church-employed by the Federal government. This training isn’t to make pastors into tax experts. It’s to make them good clients of tax experts.
A big concern for me with the Paycheck Protection Program loans was how churches would actually receive forgiveness. Churches accepted these loans without knowing what strings would be attached. The good news is that forgiveness is surprisingly simple!
If you applied for the loan, watch this now because it will give you ideas on maximizing your forgiveness. You will end up with less forgiveness if you:
Reduced your FTE during the crisis without a plan to return back to normal FTE by June 30th.
Reduced an employee’s salary/wages by more than 75% during the crisis without a plan to return it back to normal by June 30th.
Normally I aim for helping church finance committees, pastors, and other leadership. With this pandemic, a lot of energy has gone towards helping the church as a small business, but what about the church as a group of individuals? If you go to long without considering the well-being of the individual, the church is going to struggle.
While there’s a ton in the CARES Act to benefit folks, I see three that are probably the biggest ones directed to individuals. Most of this is with the United Methodist pastor in mind, but they definitely do apply more broadly.