Clergy and taxes

It's that time of the year again. Tax time! This morning I have a question to ask of my readers. Some have contacted me recently saying they are being told that the housing allowance for clergy is limited to 50% of their salary. I heard that last year from the treasurer of one church who said he had been told that at a financial seminary he attended for church leaders. However, he serves in a church with a fully-funded pastor.

In the past it was my understanding that since a bivocational pastor had additional income outside the church he or she could designate up to 100% of their church income as housing allowance as long as it could be justified and did not exceed the fair rental value of the property plus some other expenses. Does anyone know if the tax code has changed in this regard?

As you prepare to do your taxes this year I do encourage you to have a discussion with your accountant or tax preparer to be sure they understand clergy taxes. When I went into the ministry I took my taxes to the accountant I had always used for my business. She insisted that she was very familiar with clergy tax law and did tax returns for numerous clergy persons. I then found out she had never heard of a housing allowance for clergy. I found a new accountant.

A good friend of mine who also served as a bivocational pastor kept insisting there was no such thing as a housing allowance for clergy. His accountant told him that for years. Finally, my friend learned such an allowance was allowed, and he had overpaid his taxes for all those years.

Don't be afraid to seek the advice of more than one accountant when it comes to your taxes. If you can find one who specializes in clergy taxes that's even better. Sometimes a nearby seminary or Bible college can direct you to such an accountant. The key is to seek that advice before you file your taxes.

Now, back to my earlier question. Can anyone tell me if the tax code has been changed to limit clergy housing allowance to 50%?

Render unto Caesar

The Bible teaches us that Christians have an obligation to be good citizens. We are to render unto Caesar what is his and to God what is His. The past few days I've been rendering unto Caesar. Yesterday I voted in the Indiana primary, and the day before I paid my property taxes. On April 15 I mailed in my income tax payment. Last week I paid the sales taxes from the preceding month's auction's sales.

In addition we are taught in Scripture to pray for those in authority over us. I admit that following this one can be difficult at times, but I remind myself that I am to pray for the office and the person who occupies that office. I may not personally like or admire the person, but I am to respect the office he or she holds, and it is out of that respect that we are to pray.

When I turned 18 this nation still had a draft system in place due to the war in Vietnam. Knowing that I was getting close to being drafted I decided to enroll in the Navy instead. This nation enjoys the freedoms it enjoys today because brave men and women have been willing to serve in the military to protect those rights. I was not going to burn my draft card or run away to Canada to avoid serving my nation as some did, and I look on those four years in the Navy with a great deal of pride. I appreciate the opportunity to have served our nation in that way.

However, we must never forget that as Christians we hold a dual citizenship. We are both citizens here, and we are citizens of the Kingdom of God. We are called upon to also render unto God what belongs to Him. That includes our ultimate loyalty and faithfulness. Any time the state asks us to do something or accept something that is contrary to the clear Word of God we must obey God.

Sometimes people will say they would suffer the consequences if needed to obey God rather than the state. I have to admit that I wonder about that because there are many things in the Bible that we are commanded to do as citizens of God's Kingdom that most Christians do not do.

• We are commanded to share our faith, but few Christians have ever led anyone to faith in Christ.
• We are taught to tithe, but the average Christian gives less than 2.5% of their income to the church.
• We are commanded to gather together for corporate worship, but for many Christians today attending church on Sunday is something they do if there's nothing else going on.
• We are told that we are to grow in our faith, but many Christians have never grown beyond their initial salvation experience.
• We have been given spiritual gifts by the Holy Spirit for the purpose of ministry, but few Christians can tell you what their gifts are or how they are using them for ministry.
• We are told to pray without ceasing, but many Christians admit to seldom praying unless they are facing a crisis.
• We are taught to honor and care for our spiritual leaders, but many pastors and other ministry leaders often struggle financially. Clergy abuse accounts for a large number of clergy persons leaving the ministry every year.
• We are commanded to work for justice for those who are oppressed, but how many Christians or churches can you name who are doing that?

The list could go on and on, but I think this is sufficient. Most of us are faithful in rendering unto Caesar what is his, but that is often due to the fact that if we don't we break the law and face penalties. We are often less likely to render unto God what belongs to Him because we don't see an immediate penalty if we don't. We forget that there is a day of judgment coming for each of us.

But, we should not be motivated by the fear of God's judgment to do the things He has directed. Our motivation should come because of our love for Him and our appreciation for all that He has done for us. We should seek to be good citizens of the Kingdom of God because we are the recipients of Gods grace, not because we fear His judgment. We should desire to obey Him because blessings come through obedience, and those blessings are not only ours to receive but will also be experienced by those whose lives we touch on His behalf.

Ministers and taxes

A pastor called asking a question about his 1099.  I let him finish his question and then asked if the church had given him a 1099.  They had, and I had the unfortunate responsibility to explain to him that it is my understanding of the law that he must be given a W-2 to submit to the IRS.  This is a conversation I have just about every year about this time.  I am not a tax attorney nor am I an accountant, but it is my understanding that the IRS requires that ministers be given a W-2 and not a 1099.  Some churches still have not got that message.

Our conversation worsened when he began asking about his housing allowance.  I asked if his housing allowance was written down anywhere.  He responded that it was just a verbal agreement that so much of his salary would be considered housing allowance.  Sadly, I had to explain to him that a housing allowance must be designated in advance and recorded either in the clerk's report or by being a line item in the budget.  Since neither had been done I told this pastor that in all likelihood he would not receive a housing allowance for 2013 and would have to pay income tax on his entire salary.

These are laws that have been on the books for decades, but many churches and pastors still are not aware of how they work.  It is critical that both churches and clergy learn these laws because the last thing anyone wants is the IRS investigating possible misconduct in how the pastors were paid and how those earnings were reported.

Many years ago the church I pastored became aware of the requirement that their pastor be given a W-2.  Our treasurer was a kind farmer who had kept the financial records of the church for several years, but when we began to discuss the importance of following the IRS regulations, he resigned because he did not feel he could learn those regulations.  Fortunately, a very efficient individual accepted the position and went to a local CPA to ask about how to fill out a W-2 and what laws we needed to be especially careful about.  She never had any problem after that first year of getting me a very complete W-2.  If your financial person is squeamish about issuing a W-2 and other reporting requirements I would highly recommend he or she talk with an accountant who is knowledgeable about church and clergy taxes.

One other area I find a lot of smaller churches make mistakes in their pastoral compensation is in their reimbursement policy.  Too many churches still want to have an agreement with the pastor that a certain amount of his or her salary is considered as reimbursement for such things as mileage.  Any reimbursement policy that does not actually reimburse the minister for out-of-pocket expenses will result in that money being considered income by the IRS.  For instance, a church cannot state that the pastor's salary includes $500.00 for gasoline each month to reimburse the pastor for travel on behalf of the church.  No!  No!  No!  The pastor must actually turn in a mileage report and be reimbursed for the miles driven or that $500.00 is considered to be taxable income by the IRS.

I will repeat what I said earlier.  I am not an attorney nor an accountant, but these are the rules as I understand them.  Please check with one if you have any doubts or questions about what I'm posting in this article.   If anyone knows where I am wrong, please let us all know because it is important that churches understand and follow the tax laws.  It just prevents so many problems down the road.