ETFS is an industry specialist in preparing clergy taxes and understands that clergy taxes are complex and impactful. ETFS has been committed to guiding each minister through the process of mastering the reality of your compensation for the services you perform daily.
New Tax Laws – FAQ’s (Frequently Asked Questions)
1. What do minister’s need to know about the new tax law?
There are several changes that will affect many taxpayers, but here are the top things you need to be aware of:
- Employee Business Expenses – The biggest change that will affect ministers is the removal of Form 2106. Meaning you can no longer deduct un-reimbursed business expenses such as mileage, books, supplies, materials, gifts, travel, professional development, etc. CONTINUE TO KEEP OF WITH THESES DEDUCTIONS AS THEY WILL STILL LOWER YOUR SOCIAL SECURITY TAX.
- Employer paid moving expense– If your conference or church pays for you to move, even if they pay the moving company directly, it is taxable income to you.
- State & local tax deduction– If you live in a state that has an income tax, the amount of taxes you pay to your state, city and/or county is now limited to $10,000.00.
- Exemption deduction– The exemption deduction for you, your spouse, & your children has been removed.(It was $4,050/person in 2017)
- Standard Deduction– The standard deduction is now almost double what it was in 2017. This is used by those who do not itemize their deductions. Here are the new amounts:
|Head of Household||$9,350||$18,000||$18,350||$18,650|
Doubling the standard deduction will not positively impact most ministers because your itemized deductions are generally larger than twice the standard deduction. BUT since you are losing the deduction for un-reimbursed business expenses, these new standards may help if your itemized deductions are lower.
- Child Tax Credit – For those who have children under 17, this tax credit has increased from $1,000 to $2,000. There is a new $500 tax credit for children over 17, and other non-child dependents. However, both credits are reduced based on income.
- Tax brackets– The new brackets have improved or decreased slightly. Meaning you maybe taxed at a slightly lower rate. Here are the new rates for 2020:
|10%||10%||up to $9,875||up to $19,750|
|15%||12%||$9,760 – $40,125||$19,751 – $80,250|
|25%||22%||$40,126 – $85,525||$80,251 – $171,050|
|28%||24%||$85,526 – $163,300||$171,051 – $326,000|
|33%||32%||$163,301 – $207,350||$326,001 – $414,700|
|35%||35%||$207,351 – $518,400||$414,701 – $622,050|
|39.6%||37%||over $518,400||over $622,050|
2. Has the Parsonage Exclusion been eliminated?
After lengthy discussion, the Parsonage Exclusion is still available to ministers. However, eliminating it in future years is still being discussed.
3. Do I have to report Honorariums from speaking engagements?
Yes, if you receive $600 or more in a year. This is not a new rule.Churches and organizations are supposed to issue you a 1099-misc if they give you $600 or more. (This is to help the IRS know that you received funds for services, and they want their part.) The IRS also expects you report the income even if you were not issued a 1099-misc form. Remember, you can deduct any expenses related to that engagement such as travel (if included in check), supplies, standard per diem, etc.
Tip: If you accept speaking engagements very often and are asked to provide your social security number, I suggest applying for a Federal Identification Number (FIN) so you can protect your social security number.
4. Should you adjust withholdings?
Maybe. Each case is different, and there are so many variables. What should you change or raise it to? With it being so late in the year, whatever you can afford. Example, if you are losing you biz expense deduction of say $10,000, then you may want to raise your withholdings by $125 per month for the entire year. IRS has a withhold calculator but it’s not very helpful for ministers. (You can find the link in the Tax Center under ‘Resources’ tab.)
Tip: States are adjusting their laws based on IRS changes. This may increase your state liability also.
For a more extensive list of changes affecting individuals CLICK HERE
For a complete list of changes and current info from the IRS , check out the IRS Newsletters on this website.
Do you own a home? Do you own multiple homes? Are you renting? How much are your utilities and repairs? What does it take for you to provide a home? These questions are significant in the process of understanding your parsonage allowance.
The lesser of the fair market value or the actual expense of your home, is excluded from your federal taxable income.
ETFS focuses on becoming familiar with your unique situation to help you answer the questions above. With this understanding ETFS can guide you in the proper steps you must take to maximize tax benefits.
For a sample of a Parsonage Report Worksheet click HERE.
Should you opt out of social security? Have you been paying the right amount of self-employment tax? Have you already applied for social security exemption? Do you know all of the consequences? Are you prepared to support medical and retirement benefits yourself? These are critical questions that must be answered as clergy.
ETFS wants to empower you to make the best decision regarding social security for your future. We understand that it is important for you to know the reality of your situation and responsibilities for your benefit.
- Housing Subsidy
- Cell Phone Allowance
- Tuition Subsidy
- Spouse Travel
- Moving Expense
Checklist for Ministers
ETFS provides a Quick list of possible deductions for our clergy clients
Here are few items you can find on the list:
- Un-reimbursed Business Expenses
- Books, Supplies, Sermon helps
- Ministerial robe/cleaning
- Business Cell/Fax
For the complete Checklist for Ministers click HERE.