Disclaimer: This is general tax advice so don’t sue me. The question I was left with last week was: Can the church claim a payroll tax credit if their pastor is out because of COVID? After doing much research and calls, I came to the conclusion that the church cannot claim the tax credit.
The primary reason for this is the pastors confusing tax status. The IRS considers them to be employees, but the Social Security Administration considers them to be self-employed. This credit is tied to payroll taxes which are under the Social Security Administration.
This does open it up that the pastor might be able to claim this tax credit on their personal tax return. This could be a nice bonus for pastors…as long as they keep documentation of their time out. My preliminary estimate is that pastors could get around a $2,000 credit on their taxes. Here’s how I calculated it:
$50,000 in Self-Employment Income (Base Salary of $42k + Fair Rental Value of Parsonage of $12k – Salary Withholdings of $4k)
÷ 260 Work Days (The IRS assumes self-employed folks work just 5 days per week 52 weeks a year. Isn’t that cute.)
x 10 Days (if you were out two weeks, you would get 5 days/week.)
Disclaimer: This is general tax advice so don’t sue me. I had almost forgotten about the Families First Coronavirus Response Act (FFCRA) until I got a call from Bismarck McCabe UMC. They were on top of things and knew more than I did. The only question we still have is if clergy are covered.
Long story short, FFCRA gave employees an extra 80 hours of sick leave (or proportional if part-time) if they or a member of their family was directly affected by COVID. This is different than being affected by the shutdowns. You can see more about this in the links below. To help pay for this sick leave, you can claim a payroll tax credit! This is good news for churches that already file a quarterly Form 941.
Here’s what makes this credit so good:
Dollar for Dollar: You get reimbursed 100% for this sick leave in most cases. This includes health insurance costs.
Includes Health Insurance Costs: While few lay employees receive health benefits from the church, that portion can also be applied to the credit.
Refundable: This credit is refundable. A lot of our churches don’t pay in much for payroll taxes so it’s nice to know that, when the credit is larger than the taxes, you’ll get a check back.
I’ve worked in church finances for almost 20 years now. Almost every time I receive a noncash donation (such as stock or a piano or grain), the donor wants a receipt and often they want you to include on that receipt the value of the donation. The church is not equipped to value noncash gifts which amount to providing tax advice. The IRS recognizes this and warns donees to not value these gifts.
So what do you do if the donor insists on you valuing the gift? Here’s what I do. I normally visit with the donor and let them know that the IRS doesn’t allow the church to give an amount for the value of a noncash gift. I let them know that we’ll give them a receipt that has all the details they need for any tax professional to figure out the value. In the video I detail how to fill out the receipt, and I have a template linked below.
How does your church leadership view Giving Statements? Many think of it as a tool to guilt people into faithful giving. Some of it view it just as an administrative task that does nothing for the church. What if your church’s giving statements were something that people looked forward to receiving and helped the grow as generous givers? I think this is possible, but it starts with changing your view of the giving statements.
Here’s the changes to be made:
From a reminder of pledges to a reminder of how giving is changes lives/the world.
From the focus being on the IRS and the Church Budget to the focus being on the donor and the Church Mission.
From an administrative burden to a ministry opportunity.
From something that the donor should be grateful to receive to a way to show gratitude to the donor.
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.
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.
The first stock gift I ever received as a church treasurer was several shares of Coca-Cola Company stock from a wonderful member named Char. Char wasn’t a multi-millionaire. She was just like so many ordinary people that happen to own stocks, bonds, or shares of a mutual fund. You don’t need to have a Bill Gates in your church to receive a stock gift. Ordinary people make these extraordinary gifts each year. Because of Char’s example, I actually made my own stock gift a few years later to support the church’s capital campaign.
I was fortunate enough to have David Nash (a financial guru) to guide me on receiving this gift. Not every church will have a David Nash. You don’t need special knowledge to accept a stock gift. You just need the right connections. If you are a United Methodist in the Dakotas, the Dakotas United Methodist Foundation is your David Nash.