The Pastor

1

• The Pastors/Overseers Compensation Package

2
Establishing a Tax-Advantageous Compensation
Package

• Establish the fringe benefits that will be
  provided
• Medical Insurance
• Expense Reimbursement
• Housing Allowance
• Retirement

3
Medical Insurance

• Premiums paid for accident and health insurance
  by an employerthe churchare not taxable income
  according to Sec. 106.

4
Revenue Ruling 61-146

• Pay pastors medical insurance as a benefit
• OR
• adjust salary to pay premiums.
• Pay with church check
• OR
• pay with personal check and be reimbursed,
• OR
• pay by spousal payroll deduction and be
  reimbursed.
• Documentfurnish clerk with an invoice.

5
HRAHealth Reimbursement Arrangement, Rev. Ruling
2002-41

• Must be paid by employer
• Cannot make a salary reduction election to pay
• Any unused portion is carried forward.
• Can be reimbursed for out-of-pocket costscosts
  not paid by insurance.

6
Self-Insured Medical Reimbursement Plans

• Must have a plan or arrangement uniform to all
  employees.
• Employer pays medical expense directly to
  hospital, doctor, etc.
• When funded by salary reduction, it becomes use
  it or lose it.

7
Cafeteria Plans

• Separate written plan maintained by employer
• Employee selects benefits according to Sec. 125.
• Child care, self-insured medical reimbursement
  plans, health benefits, etc.
• Benefits are use it or lose it.

8
Expense Reimbursement

• Establish an accountable reimbursement plan for
  auto and professional employee business expense
• Written plan
• Employer can initially adjust the salary to fund
  the plan.
• Expenses for a minister are no different than for
  any other professional.

9
Accountable Reimbursement Expenses

• You must account to your employer
• Account book
• Diary
• Statement of expense with supporting documentary
  evidencereceipts

• 1. Not reported on tax return
• 2. Employer does not include on W-2
• 3. Do not have to substantiate to IRS
• 4. Significantly lowers risk of audit

10
Professional Expenses

• IRS Publication 535
• Auto Expense
• 58.5 mileage allowance (7/08)
• log mileage
• date odometer reading B/E
• place/purpose
• Lodging/Meals
• away overnight

11
Professional Expenses

• Record amount
• date
• place traveled to
• business purpose
• Must have receipts for
• lodging
• any other expense over 75.00
• You may maintain an account book for any expense
  under 75.00.
• IRS rule and company policy may differ.

12
Professional Expenses

• Entertainment
• Meals directly related to conducting your job
• Education Expense
• Computerpercent used in job
• Office supplies/postage
• Seminars/dues
• Subscriptions, books, long-distance phone calls,
  cell phone

13
Professional Expenses

• Business expense is only allowable for the person
  earning an income.
• Exception As entertainment expense, spouses
  meals are deductible.

14
Per Diem Rates

• Applicable per diem depends on locality of
  travel.
• www.policyworks.gov/perdiem
• Consistently apply in accordance with reasonable
  business practice.
• May use per diem for food.
• Actual lodging expense must be used.

15
Without Accountable Reimbursement

• Report Employee Business Expense, Form 2106
• Subject to
• 2 itemized deduction limitationjob expense
• IRC 265 limitation
• Taxable Compensation divided by Gross
  Compensation Percentage Ratio allowable
  deductible Expense on Schedule A
• Result in more income taxGreater chance of audit.

16
Designate Housing Allowance

• IRS Code Sec. 107
• In the case of a minister of the Gospel, gross
  income does not include
• 1. The rental value of a home furnished to him
  as part of his compensation or
• 2. The rental allowance paid to him as part of
  his compensation, to the extent used by him to
  rent or provide a home.

17
Housing Allowance

• Must be designated in advance
• Must be a specific dollar amount or a specific
  percent of salary
• Minutes of finance committee
• IRS will accept a perpetually worded designation.
• Tax plan annually and increase as needed.

18
150,000 Home
Principal 835
Taxes 1,782
Interest 8,081
Insurance 1,340
Repairs 793
Furniture 1,409
Decorator Items 463
Utilities, Telephone 3,738
Misc. Supplies 642
19,083
19
Ministers Who Own

• FRV Home 18,000
• FRV Furniture 6,000
• Decorator Items 463
• Utilities 3,738
• Miscellaneous 642
• 
  28,843
• Reduces Income Tax
• Does not reduce Social Security Tax

20
Three Hoops

• Must use the smallest
• Actual amount spent19,083
• FRVFair Rental Value28,843
• Rule of thumb
• House1 of Market Value per month
• (150,000 house 1,500 per month)
• Furnishings1/3 of house value
• (150,000 x 33 50,000 - 1 500)
• Amount designated as allowance 24,000

21
Ministers Who Rent

• Ministers who rent their homes will want to
  designate an amount to cover
• actual rent
• cost of furnishings
• cost of decorating
• renters insurance
• utilities, etc.

22
123-45-6789
Your local church EIN
26,582.80
Church of God of Prophecy 125 Main Street Your
Town, TN 31234
E 3,888.00
John H. Doe 246 Washington Avenue Your Town, TN
31234
X
Not included in Box 1 24,000.00 Parsonage Allow.
23
Why Consider Investing Now for Retirement?
24
Jan Couch

• P.O. Box 2910Cleveland, TN 37320-2910
• 423.559.5222FAX [phone]
• kjcouch_at_aol.com
• jan_at_cogop.org