|
CHURCH FINANCES
When You Hire
Employee or Independent Contractor?
Determine whether the church worker is an employee or an independent
contractor. Most are employees. The IRS uses a list of 20 criteria
to determine the status. Another seven criteria emerged from a recent
court ruling.
Interestingly, most ministers have a somewhat confusing, dual status
with the IRS. They are considered employees for income tax purposes
and receive W-2s, but independent contractors (self-employed) when
it comes to Social Security.
The church, as employer, must make this determination. It isn’t
the worker’s role to determine which status applies.
Complete the Appropriate Tax Forms
Have the person complete the form needed for reporting and tax
withholding information--
- A W-4 form for non-clergy employees and ministers who want income
tax withheld.
- A W-9 form for independent contractors.
These forms provide information you will need in making reports
and payments to the government (such as the person’s address,
Social Security number, and other information).
Confirm the Person’s Identify and Employment Eligibility
Churches must complete an I-9 form and keep it on file, as evidence
that an employee is legally entitled to work in the United States.
In hiring someone, you must verify two things:
- The person’s identity.
- The person’s eligibility for employment.
Form I-9 lists acceptable documents which you can use to verify
identity and employment eligibility. The most common ones:
Documents that establish identity: driver’s license,
government ID card, school ID card with photo, voter’s registration
card, US military card or draft record. There are 12 such documents.
Documents that establish employment eligibility: US Social
Security card, or birth certificate (original or certified copy).
There are seven such documents.
Documents that establish both identity and employment eligibility:
US passport, certificate of US citizenship, naturalization certificate.
There are ten documents in this category.
Establish a Voluntary Withholding Agreement, if Requested
The church isn’t required to withhold taxes from ministers’ income. However, the minister can request that money be withheld.
In this case:
- The figure may be large enough to cover both income taxes and
SECA taxes.
- In paying this money to the IRS, the church must identify all of the money as federal income tax withheld. Don’t break
it down into income tax and SECA (churches are never to
withhold or match Social Security for ministers). This amount
will appear on the quarterly Form 941, and in Box 2 of the W2
form.
Provide a Copy of the Reimbursement Policy
Each employee needs a copy of the church’s accountable reimbursement
policy.
Complete the Forms Needed for Insurance Purposes
Health Insurance. If the person wants health insurance,
you need to get the proper forms from your conference insurance
administrator. Your conference may also offer supplementary insurance
plans, such as dental insurance.
Your conference’s health plan may have a minimum number of
hours (such as 30 hours a week) needed to qualify for health insurance.
Your conference insurance administrator can provide that information.
Insurance Waiver. An employee may be insured through a spouse’s
job, and not want to be part of your health insurance plan. If the
employee doesn’t want health insurance, he needs to fill out
a waiver form, which you can get from your conference insurance
administrator. The waiver then needs to be sent to your conference
treasurer, who will then forward it to the insurance company as
proof that this person doesn’t want insurance. Keep a copy
of the waiver for your own files.
Disability Insurance. If your conference participates in
the denominational disability insurance plan, obtain enrollment
forms from the General Treasurer (call toll-free, 1-888-622-3019).
You must enroll or sign a waiver. Return the completed forms to
the General Treasurer (302 Lake St., Huntington, IN 46750).
Enroll Qualified Persons in the Denominational Pension Program
United Brethren licensed ministers are eligible to join the denominational
pension program beginning the January 1 after their hire date. Unlicensed
ministers who are employed may join the program the January 1 after
they receive a UB ministerial license (local, specialized, annual
conference, or ordination). They must be at least 21. For information
on enrolling, contact the General Treasurer.
Determine the Amount of Housing Allowance
When the pastor lives in a parsonage, designate a portion of the
cash salary as parsonage allowance for the additional home expenses
the pastor personally incurs.
When a cash housing allowance is paid in lieu of furnishing a parsonage,
designate part of the total cash compensation as parsonage allowance
for the whole cost of providing the home and furnishings. Cash housing
allowance usually is not sufficient to cover all costs.
Complete a Salary Reduction Agreement
This only applies to employees who contribute to 403(b) tax-deferred
annuities, and whose contribution amounts will change for next year.
The IRS permits only one additional change during the year.
Complete a salary increase agreement when the church makes
a contribution, above salary, to the minister’s 403(b).
Compute Taxes
Compute taxes according to the W-4 and IRS Publication 15 (Circular
E) tables. Deposit taxes according to Publication 15 rules. This
is mandatory for non-clergy employees.
The church must withhold FICA and income taxes for employees who
don’t qualify as ministers. Failure to do so can result in
substantial penalties (plus interest). The IRS can impose these
penalties on the persons responsible, such as church officers (even
a volunteer treasurer).
Establish a Regular Pay Schedule
Make it weekly or bi-weekly, with the specific day of the week
identified--and stick to it. Deliver the paycheck on the day the
staffperson expects to receive it. Laypersons expect that in their
jobs, and they shouldn’t make a pastor wait a day or two, because
the treasurer just hasn’t been able to get around to it.
Insurance and pension withholdings won’t necessarily be the
same for every paycheck. Watch out for that.
Report New Employees to the Applicable State Agency
Federal law requires that all new employees be reported to the
state (the specific office you report to will change from state
to state). This must be done within 20 days of being hired
|
