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Playing by the Rules: Complying with the IRS

By Daniel Im

Playing by the Rules: Complying with the IRS—with Dan Busby

I grew up playing various sports, both organized and disorganized (aka pick-up games). While I know there are differences between pick-up games and official organized ones, I wanted to share with you a big difference that I see.

Now before I share one of the biggest differences that I see, let me give you three memories that illustrate this difference. First, I don’t ever remember fouling out of a pick-up game. However, I remember plenty of organized ones where I fouled out. Second, I don’t remember many holding or pass interference calls being made in the pick-up football games I participated in; however, I remember countless times where the refs called holding and pass interference. And third, I don’t remember any yellow cards waved towards a foul I committed in a pick-up soccer game, but I do remember a few that I received in organized ones.

From these examples (and more), it seems that in disorganized (pick-up) games people can get away with breaking the rules, whereas in organized official games there’s a concerted effort for people to play by the rules. Thus, I’ve found that compliance is one of the biggest differences between organized and disorganized sports. In one, compliance—playing by the rules—matters; whereas, compliance in the other doesn’t.

Having been in ministry for quite a while and having talked with many pastors, staff, and churches, I get the feeling sometimes that churches and pastors treat church finances and pastor compensation packages—particularly with regards to complying with the IRS—more as a pick-up game rather than an organized one. In reality, churches (and pastors) fail to comply because they don’t know the rules, have failed to understand the rules, or don’t think the rules fully apply to them. Not that I am expert in church finances or pastor compensation packages, but I have sought wise and expert counsel from people who do understand the rules and laws so that I and the church play by the rules.

In the latest Ministry Grid training video, Dan Busby, President of ECFA (Evangelical Council for Financial Accountability), takes a few moments to provide an overview of how churches can comply with the IRS with regards to housing allowance and social security for clergy. Given the nature of his talk, let me provide you with a bullet list of what he covered.

Clergy and Social Security

  1. There are two-types of social security
    1. Federal Insurance Contribution Act (FICA)
    2. Self-Employment Contribution Act (SECA)
  2. Qualified clergy are liable for the SECA type of social security; non-clergy are liable for the FICA
  3. FICA is deducted by the church and paid by the church
    1. The church and employee split the social security
  4. SECA can be paid by the minister in a couple of ways
    1. A minister can complete a 1040 form and schedule quarterly tax payments
    2. A minister can ask the church to withhold enough throughout the year to cover their SECA obligation (the amount withheld is reflective on the W-2 form, box 2)
  5. Churches often provide a social security allowance—paying for either part of or all the ministers’ SECA
    1. Keep in mind: the social security allowance is fully taxable for income tax
  6. Clergy can opt out of social security, but rarely qualify
    1. Keep in mind: objecting to paying into social security is not a viable or legal reason for ministers to opt out

To read the reminder of Complying with the IRS and to listen to the entire Ministry Grid training video with Dan Busby, click here for the full video and post.

This video is part of Plus Membership, so to get full access to it, and much more, I encourage you to become a Plus Member. Click here to see all the benefits of becoming a Plus Member

Tweetables:

  • It’s extremely important for churches and pastors to comply with the IRS in all matters!
  • Failing to comply w/the IRS may result in legal issues, short changing a pastor’s compensation, or dishonoring Jesus.
  • These additional housing essentials may be taxed free based upon a church’s designated housing allowance…
  • Ministers (clergy) should not be treated as FICA employees
  • Churches often provide a social security allowance—paying for either part of or all the ministers’ SECA

ABOUT THE AUTHOR

Daniel Im

Daniel Im (@danielsangi) is the Founder of NewChurches.com and the Director of Church Multiplication for LifeWay Christian Resources. He is a Teaching Pastor at The Fellowship, a multisite church in Nashville. He is the author of No Silver Bullets: Five Small Shifts that will Transform Your Ministry, and co-author of Planting Missional Churches: Your Guide to Starting Churches that Multiply (2nd ed) with Ed Stetzer. He also co-hosts the New Churches Q&A Podcast, the 5 Leadership Questions Podcast, and a brand new podcast with his wife on marriage and parenting called the IMbetween Podcast. He has an M.A. in Global Leadership and has served and pastored in church plants and multisite churches ranging from 100 people to 50,000 people in Vancouver, Ottawa, Montreal, Korea, Edmonton, and Nashville. Visit Danielim.com to learn more.

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