December can be one of the busiest and most hectic times of the year for church pastors and leaders. With all the special programs taking place, the work needed to put together extra services and recruit volunteers, and planning for the new year, it’s easy to set aside important business tasks that need to be done before year-end. With that in mind, Regular Baptist Ministries has provided a checklist that churches can use to make sure that certain tasks, especially those that have IRS deadlines, are completed in time.
Set ministers’ housing allowances for 2020.
The IRS requires that ministers’ housing allowances (including parsonage allowances) be designated in advance by the church or organization granting them. This means that any allowances to be effective in 2020 should be designated in writing before the end of 2019. A wide variety of home-related expenses are eligible to be treated as nontaxable under a housing or parsonage allowance, and churches should check with affected ministers about their expected expenses in the coming year. Since the amount of the allowance is limited to the lesser of actual expenses, equivalent market rent, or the amount designated by the church, churches should be careful not to set an amount that is too low.
Plan to issue donor statements.
Though the Tax Cuts and Jobs Act of 2017 eliminated the need for many taxpayers to itemize deductions, some still can take advantage of the deduction for charitable giving. Thus, it is still important for churches to issue accurate and IRS-compliant giving statements. The recommended best practice is to issue a year-end statement to all donors regardless of how much they gave. Those who made cash gifts of $250 or more each are required to have a receipt from the church for each gift. Be sure these documents include a statement that “no goods or services were received” by the donor in exchange for the gift.
Prepare to issue payroll tax forms for 2019.
Compensation and tax records for church employees should be reviewed prior to the final payroll of the year to ensure there is an opportunity to correct any errors. Ministers’ compensation should be reviewed to ensure they are classified as self-employed for Social Security/Medicare (Self-Employed Contributions Act) tax purposes but are classified as employees for federal income tax purposes. Any housing allowances granted during the year should be excluded from reportable compensation (Form W-2, Box 1). The compensation and tax withholdings of church ministers and employees should be reported on IRS Form W-2, not on Form 1099-MISC.
Update payroll tax forms for 2020.
In addition to making sure ministers and nonminister employees are classified properly for tax purposes, the start of the new year is a good time for all church workers to review their tax withholdings (IRS Form W-4) and make updates if needed. If desired, ministers may voluntarily elect to have their churches withhold federal tax from their pay as a substitute for making quarterly tax payments to the IRS. They can use the “extra withholding” line on Form W-4 to designate an additional amount to be withheld on each pay. In calculating a voluntary withholding election, ministers should ensure that total withholdings for the year will be enough to cover the sum of all federal income tax and Self-Employed Contributions Act tax due.
Mark Johnson is treasurer and controller for the General Association of Regular Baptist Churches.