Blessings on Blessings: The 411 on Earnings For Clergy

A familiar passage of scripture found in Luke 6:38 says: “Give, and it shall be given unto you; good measure, pressed down, and shaken together, and running over, shall men give unto your bosom…”

Although financial blessings are greatly appreciated by all mankind, men and women of the cloth should take some precautionary measures when accepting monies for their ministerial services.

Licensed, Commissioned, or Ordained ministers are considered to be common law employees of a church, employed to provide ministerial services.

Some exceptions to this classification are made to those such as traveling evangelists who are self-employed under the common law.

As a minister that performs ministerial services, all earnings, including wages, offerings, and fees received for performing marriages, baptisms, funerals, etc., are subject to income tax, whether the amount was earned as an employee or self-employed person. The way you treat these expenses (related to these earnings) differs if you earn the income as an employee or as a self-employed person.

Church Employee vs. Self-Employed

Generally, clergy is considered to be an employee if the church or organization has the legal right to control what the clergy does and how they do it, even if there is considerable discretion and freedom of action provided.

As a minister, if a congregation employs you with a salary, you are generally a common-law employee of the congregation and your salary is considered wages for income tax that can be withheld.

Amounts of money received directly from members of the congregation, including fees for performing marriages, baptisms, or other personal services, are generally earnings from self-employment for income tax purposes.

NOTE: The salary you receive from a congregation and fees received from members of a congregation are subject to self-employment tax.  

Social Security/Medicare

Regardless of a clergy’s status under common law, ministerial services performed by clergy are considered self-employment earnings and are generally subject to self-employment tax.

Deductions

If you plan to itemize your deductions when filing, you may be able to deduct certain unreimbursed business expenses that are related to your services as a common-law employee on Form 1040, Schedule A (Itemized Deductions). Other forms that you could utilize when filing are:

• Form 2106 (Employee Business Expenses)
• Form 1040, Schedule C (Profit or Loss From Business - Sole Proprietorship)
• This form is used if you are reporting self-employment income such as offerings or fees received for performing marriages, baptisms, funerals, etc.)
• Form 1040, Schedule C-EZ (Net Profit From Business - Sole Proprietorship)

Housing For Clergy

Minister’s who have been provided a parsonage (home) may exclude the fair rental value of the home, including utilities. Please note that the amount excluded cannot be more than reasonable compensation for the minister’s services.

Also, minister’s who receive a housing allowance may exclude the allowance from gross income to the extent that it is used to pay expenses in providing a home. The amount excluded cannot be more than the compensation of the minister’s services.

If a minister owns their own home, deductions can still be claimed for mortgage interest and real property taxes. If the housing allowance exceeds the lesser of the reasonable compensation, the fair rental value of the home, or actual expenses, it must be included in the amount of the excess in income.  

NOTE: The minister's employing organization must officially designate the allowance as a housing allowance before paying it to the minister. Also, the fair rental value of a parsonage or the housing allowance is excludable only for income tax purposes. The minister must include the amount for self-employment tax purposes.

Exemption from Self-Employment Tax:

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Did you know that clergy could request exemption from self-employment tax?

Yes, ministers can request an exemption from self-employment tax for their ministerial earnings, if they are opposed to certain public insurance for religious reasons. Exemption can NOT be requested for economic reasons.

In order to request this exemption, one must file Form 4361 (Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners).  This form must be filed by the due date of the minster’s income tax return (including extensions) for the second tax year that the minister has net earnings from self-employment of at least $400.

Moving Forward

As you continue to do the work of the Lord and make a difference in the lives of others daily, remove the burden of having to figure out how to file your taxes. With ExpressTaxExempt, we provide a simplified e-filing process that will suit all of your filing needs. Visit our website and save even more money when you e-file with our recently reduced filing rates! We’re available to assist you via phone at 704.839.2321 on Monday through Friday from 9 a.m. to 6 p.m. EST or reach out to us 24/7 via email at support@ExpressTaxExempt.com.

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Tax Exempt Organizations and Nonprofits: Are They The Same Thing?

Nonprofit vs. Tax Exempt | They’re the same thing, right? Or are they different? Hmm...

Often times the terms “nonprofit” and “tax exempt” are used interchangeably in conversation. While tax exempt status is conferred and determined by the IRS.
Many organizations are both nonprofit and tax exempt, there is an important distinction between the two. For example, nonprofit status is designated by the state while

Here’s a more detailed explanation on nonprofits and tax exempt organizations:

What is required for an organization to be considered a nonprofit?

According to the IRS, nonprofit status is a state law concept; meaning that an organization must apply for and receive nonprofit recognition from the state in which it does business. 

Once an organization has become a nonprofit it receives benefits, determined by its state, which includes exemption from property taxes, state and local income taxes, franchise taxes, and sales taxes for that state specifically. 

Misconception of Nonprofit Organizations

One of the main misconceptions of nonprofit organizations is that these groups are NOT allowed to make any profits throughout their calendar year. In all actuality, nonprofits usually have to turn a regular profit in order to function and operate effectively. Things such as facility upkeep and equipment purchases or repairs, require additional funds that go far beyond their annual expenses. 

As a nonprofit organization, these groups are allowed to receive funds, but any surplus of profit cannot be distributed to an organization’s members, employees, officers, or shareholders, and must be used within the organization to further the mission and goals of the nonprofit. 

How does an organization receive Tax Exempt Status?

An organization who has been granted tax exempt status must have received this recognition from the federal government. Being tax exempt essentially boils down to these two things:

1) The organization does NOT have to pay corporate income taxes on any money generated from the organization 

2) Those who donate money to the [tax exempt] organization can use a tax deduction for their donations when filing their taxes. 

Although most believe that many nonprofits automatically have a tax exempt status, they must apply for tax exempt status separately. The requirements for acquiring tax exempt status can be found in Section 501(c)(3) of the Internal Revenue Code. Generally, the main requirement to have tax exempt status is that the organization must be organized and operated specifically for charitable, religious, educational, cultural, scientific or humanitarian purposes. 

What does it mean to be tax exempt?

Sounds like a self-explanatory question right? Unfortunately, most misconceive the tax exempt reality. Organizations that are tax exempt technically aren’t completely exempt from tax. 

Although exempt organizations are not required to pay federal income tax, they are still subject to state and local taxes unless there’s a nonprofit designation which exempts them from those payments. 

Additionally, most exempt groups have to pay the employer’s share of their workers’ Medicare & Social Security taxes along with federal unemployment taxes. 

Maintaining Your Tax Exempt Status

As a nonprofit organization, it is crucial that you maintain your tax-exempt status with the IRS. ExpressTaxExempt, the #1 IRS-authorized tax e-filing solution for tax-exempt organizations, allows you to do just that. Providing security, ease, and peace of mind to organizations and its leaders, we respect the services that nonprofit organizations give to communities and are motivated to help with e-filing so you can get back to proudly making a difference in your community. With newly reduced rates, organizations can now save funds annually when e-filing Form 990 Series (Form 990, 990-EZ, 990-PF, 990-N, and Form 1120-POL). Pay us a visit at www.expresstaxexempt.com today and begin your e-filing process. 

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The Nonprofit Summer Checklist

Summertime is here! But here in the nonprofit game, that hardly means it’s time for a vacation. You know better than anybody that, even if you’re not actively bringing in donations, doing service work, or holding fundraisers, there’s still plenty of nonprofit work to be done! Liiike…

Boosting Your Social Media Presence
A great time to launch, re-launch, or rebrand yourself on social media is during the summer. School’s out, people are taking more vacations, and with all that extra time, traffic to social media sites increases. So now is the perfect time to put your best virtual face forward!

Developing a Personal Work Plan
You’re a big reason your organization’s charitable work gets done. So it’s especially beneficial to make sure you take some time this summer to review your own personal goals for what you want to achieve during the second half of the year. Think about how you’ll be able to manage your time, workloads, and other specific duties.

Doing Some Summer Cleaning
Like spring cleaning except a season later! Based on everything that’s happened so far this year, you should have an idea of what you’ll need for the second half of 2017. So now’s the time to get organized: sort your inboxes, file donor letters, and update your contributor relationships.

Filing Your Return (If You Need To)
Some of you may have gotten this out of the way in May, but others may have due dates this month! Organizations with certain fiscal tax years will need to file June, July, or August 15 this year for the 2016 tax year. Additionally, if you filed Form 8868 to extend your Form 990 May 15th deadline, you may have until November to actually file, but it wouldn’t hurt to go ahead and get a jump start on it this summer!

Preparing for Fall & Winter 2017
A lot of fundraising is done in the later months of the year and now’s the time to go ahead and plan for that. Get your holiday cards printed, write “Thank You” cards for your guaranteed contributors, and make outlines for any seasonal fundraising campaigns.

Reviewing Your Prospects
Go over your organization’s prospects - maybe pull your top 100, or however many you have. Check to see if you need to remove any of them that happen to have moved beyond consideration. You can also verify which ones have officially been added to your organization.

Taking a Look at Your Yearly Plan
Make sure your organization is on track with its proposed plan for this year. Take notes on whether or not your organization is reaching its goals. Also, pay close attention to your donor investments impact and what needs funding in the upcoming months.

Talking with Your Nonprofit’s Leaders
Don’t forget to keep the lines of communication open with your organization’s board members and principal officers this summer. If necessary, develop a board meeting calendar to confirm everything’s up to date and let them know the organization’s progress and plans for the year.

Updating Your Database
People move, phone numbers change, and the world spins madly on. So take some time this summer to make sure that you’ve got your organization’s contacts up-to-date and in order.



Of course, there are many, many more things you can do this summer to make sure everything for your nonprofit is organized, up-to-date, and readily available when you need it. But this checklist will certainly help get you and your organization on track for a successful second half of 2017!

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