TAX CHANGES AND CHURCH FINANCES
By Aubrey L. Jayroe
Revenue Reconciliation Act of 1993
Contributions: Effective January 1, 1994, churches are required to provide a written statement to donors to substantiate each cash donation of $250 or more. A taxpayer will need this written statement in order to receive a tax deduction for charitable contributions on Schedule A of his 1994 income tax form, which he will file in 1995. This does not affect donations of less than $250 even if the donor’s smaller contributions for the year totals more than $250.
The church is also required to give a written statement to any person who receives goods or services for a cash contribution if the difference between the cash contribution, and the goods or services is $75 or more. For example, a person donates $100 and receives a cake at a fund-raising event at church. The cake would normally sell for $10. Since the difference is more than $75, the church is required to issue a statement, showing $90 as the difference. The taxpayer can list only $90 of the $100 on Schedule A of the income tax form. Moreover, the church must issue a statement for each donation of this kind.
Minister’s Spouse Travel: Beginning January 1, 1994, no deduction will be allowed for expenses incurred by a spouse who accompanies a minister on a business trip unless (1) the spouse is an employee of the business (church) that pays for the expense and (2) there is a qualified business purpose for the spouse to be on the trip and (3) such expenses of the spouse would otherwise be deductible. For example, travel, meals, and lodging expenses will not qualify as a business expense for a spouse of a minister attending a conference or other organizational meeting unless the spouse is a bona fide employee of the church or organization and has a bona fide business purpose in attending the conference or meeting. In other words, if a church paid the expenses of the pastor’s spouse, the paid expenses would be taxable income unless the spouse is an employee (on the payroll) of the church and has a business (church) purpose in going to the conference or meeting.
Per Diem Rate Increases: Since March 12, 1993, the normal per diem rate for meals, lodging, and incidentals (incidentals include laundry, cleaning, pressing of clothes, fees and tips for services) increased to $94 per day. For meals only, the increased rate is $28 per day. High cost areas (as established by the IRS) increased to $150 per day for meals and lodging and $36 per day for meals only.
Pastors as Employees: Most pastors would be classified as employees (as defined by IRS Revenue Code) of their churches, and should file accordingly. This means that a church will furnish the pastor with a W-2 at the end of the year. The IRS has recently targeted the income tax forms of pastors who file as “self employed” on Schedule C and not as employees with a W-2.
Gifts to Ministers and Lay Employees: Generally all “gifts” to ministers that come from the church treasury are taxable income and should be reported on their W-2. This is true if the contributions for the gifts are entered into the church record as a charitable contribution credit. The IRS code states that “any amount transferred by or for an employer for the benefit of an employee” shall be taxable income, with the exception of achievement awards and insignificant ($25 or less) holiday gifts. Church members are free, however, to make personal gifts individually or collectively to ministers and lay employees, and such gifts are tax-free to the recipient but not deductible for the donors.
A retired minister who is no longer associated with the church he pastored may be allowed a one-time gift, but various regulations and guidelines must be in place prior to the gift before the IRS and tax court will consider it to be a gift rather than a taxable income.
Tax Considerations for Pastors, Boards, and Churches Before January 1, 1994
1. Update ministerial housing allowance for 1994. This must be established by the church or church board and recorded in the minutes.
2. Update accountable reimbursement plan for 1994. This must be established by the church or church board and recorded in the minutes.
3. Review other items of the compensation package (insurance, holidays, vacations, salary, etc.) for clergy and lay employees for 1994, Record all decisions in the minutes.
4. All church contributions for 1993 must be received by the church or mailed to the church by December 31, 1993. Contributions made after December 31 cannot be included on receipts for 1993.
(The above information was published by FORWARD, October/December, 1993)
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