Questions from Readers (8)
Answer:
Questions surrounding designated gifts and offerings may be the #1 topic of all the questions we receive. Here is my response:
I read in your e-newsletter that a large number of non-profits recently lost their tax exemption for not filing a Form 990 or 990-N. I realize that churches are exempt from filing those 990’s. Would it be wise to file a Form 990 as a precaution?
Written by Nick YzziAnswer:
Yes indeed, 275,000 non-profits lost their tax exemptions last week (See Article: Non Profits Lose Tax Exemption). I would say that you should NOT voluntarily file a Form 990.
In fact, IRS prefers that organizations and individuals don’t file reports or returns unless they are required to do so. It is possible that some type of reporting could be mandated in the future for churches and church-related ministries (See Article: Senate Oversight of Churches, but since there is no current requirement, I recommend that you not voluntarily file a Form 990.
I heard that there is a new tax credit for non-profits relating to health insurance premiums paid by our church. Can you provide some information regarding this?
Written by Nick YzziAnswer:
You are correct that non-profits including ministries and churches may qualify for a tax credit if they pay at least 50% of the cost of health insurance premiums for their employees. This is a tax benefit available from the federal government to non-profit organizations even though nonprofits pay no income tax.
I am a Pastor who lives in PA. I was told that I can deduct the Ministerial Housing Allowance for the State of PA. Is that correct?
Written by Nick YzziAnswer:
The bad news is that you cannot exclude your Housing Allowance from your PA wages on Form PA 40.
The good news is that the Housing Allowance is excludable from your Local Earned Income tax (if your municipal district has one). This is a local tax usually assessed at about a 1% rate that is usually administered by either your Township, borough, city or one of several outside independent companies.The standard IRS mileage reimbursement rate of 51 cents per mile to our pastoral staff for their ministry related miles does not work with our church budget (51 cents is too high). Are we required to pay that amount?
Written by Nick YzziAnswer:
The current IRS mileage rate of 51 cents per mile for 2011 is the highest rate you can reimburse an employee without having to report the reimbursement as wages on the pastor’s Form W-2.
I heard that a Minister should be treated as a self employed contractor, but that we need to give him a Form W-2 (which we give to employees) and not a Form 1099 (which we issue to subcontractors). I am hearing a lot of conflicting information.
Written by Nick YzziAnswer:
Talk about kicking a bee-hive! This is a somewhat complicated and confusing subject. My experience is that most do not understand the concept of what is referred to as Dual Tax Status for licensed, ordained and commissioned ministers, and many ministries report wages incorrectly.I am concerned that our ministry’s tax exemption could be jeopardized since we allow our pastor to drive a ministry owned vehicle which he uses for both ministry and personal purposes.
Written by Nick YzziAnswer:
This is a valid concern but easily addressed. In essence, any amount of “private inurement” can jeopardize a non-profit’s tax exemption.
According to the IRS, Private Inurement is best described as:
A section 501(c)(3) organization must not be organized or operated for the benefit of private interests, such as the creator or the creator's family, shareholders of the organization, other designated individuals, or persons controlled directly or indirectly by such private interests. No part of the net earnings of a section 501(c)(3) organization may inure to the benefit of any private shareholder or individual. A private shareholder or individual is a person having a personal and private interest in the activities of the organization.
Question: Are designated gifts to a benevolence fund allowed to be made and are they tax deductible?
Written by Nick YzziAnswer:
The area of designated gifts is one of the most commonly asked questions, including in the area of benevolence. Generally, with limited exceptions, designated gifts to individuals are not deductible. As is the case of any contribution, under IRS rules, the donation must be made unconditionally and without strings attached (or designations).
