Congregational Treasurers & Financial Leaders Newsletter – November 2017

This newsletter seeks to provide basic information about topics relevant to volunteer treasurers and leaders involved in financial management in Northern Illinois Synod congregations.  


The Northern Illinois Synod was pleased to be able to offer the Treasurer’s and Bookkeeper’s workshop on October 21, 2017 at Faith Lutheran Church in Rochelle.  There were many positive responses following the workshop. For those that were unable to attend the October 21st workshop, Tom Hammar & Associates will be hosting a similar Treasurers and Financial Leaders workshop on Saturday, December 2nd in Rock Island.  All the details on this workshop can be found in Walking Together.   

DATES TO KEEP IN MIND

December 31, 2017

  1. Churches must designate a portion of each minister’s compensation as a housing allowance by this date in order for ministers who own or rent their homes to receive the full benefit of a housing allowance exclusion for calendar year 2018.  The designation should be adopted during a regular or special meeting of the church board, and should be contained in the written minutes of the meeting.
  2. Donors must deliver checks on or by this date in order to claim a charitable contribution deduction in 2017.  Checks that are placed in the church offering during the first worship service in 2018 will not qualify for a charitable contribution deduction in 2017, even if the check is predated to 2017 or was actually written in 2017.  However, checks that are written, mailed, and postmarked in 2017 will be deductible in 2017, though they may not be received by a church until 2018.
  3. Your marital status on this date determines your filing status for the year.

January 1, 2018

  1. “If you have a lay worker who is treated as self-employed for federal income tax reporting purposes, but who you would like to reclassify as an employee, the ideal time to make the change is on January 1, 2018.”

Provided by: Senior Editor Richard R. Hammar, JD., LL.M., CPA.  Published by Christianity Today – Church Finance Today.

January 31, 2018 – Filing Dates

  1. W-2, W-3, 1099-MISC & 1096 Forms
    1. Filing date applies to both mailed in forms and e-filed forms.
    2. Requests for filing and extension application for W-2’s must be submitted on IRS Form 8809 by the January 31 deadline.  The extension is for 30 days.
    3. The IRS penalty for failure to furnish statements by January 31, 2018, is $50 per W-2 statement.
  2. The Employer’s Quarterly Federal Tax Return and IL-941

HOW TO COMPLETE A W-2 FORM FOR PASTORS

Box a. Employee’s Social Security Number

Box b. Employer Identification Number (EIN)  i.e. 36-XXXXXXX

Box c. Employer’s Name, Address, and Zip Code

Box d. Control Number – Number each W-2 being issued 1, 2, 3, etc

Box e. Employee’s First Name, Middle Initial and Last Name

Box f. Employee’s Address and Zip Code

Box 1. Wages, Tips, Other Compensation: Salary + REFICA Reimbursement + Auto Allowance (MINUS) Salary Reduction for Retirement Plan and/or Flex Spending.

(Note:  If the Pastor is only being reimbursed each month for the travel receipts being submitted this is not considered income and would not be included in Box 1 as compensation.  Auto Allowance that would be included is if the Pastor is being compensated each month the same amount and no receipts are being submitted.)

Box 2. Federal Income Tax Withheld:  Amount withheld from paycheckIf the pastor had no Federal Withheld  Leave Blank

Box 3. Social Security Wages: Leave Blank

Box 4. Social Security Tax Withheld: Leave Blank (cannot withhold)

Box 5. Medicare Wages and Tips: Leave Blank

Box 6. Medicare Tax Withheld: Leave Blank (cannot withhold)

Box 7: Social Security Tips: Leave Blank

Box 8: Allocated Tips: Leave Blank

Box 9: Leave Blank

Box 10: Dependent Care Benefits: Leave Blank

Box 11: Leave Blank

Box 12a: Code E [  $ Amount  (Salary Reduction for Retirement Plan)

Code DD  $ Cost of Employer-Sponsored Health Coverage  (Note: A Self Insured Church Plan  (Portico) are currently exempt from this requirement.)

Box 13:  Place X in Box for Retirement Plan (Only if Box 12a was completed  otherwise Leave Blank)

Box 14: Other – Type Housing and $ Amount  and /or Auto and $ Amount

              (Auto is only if the Pastor received compensation – refer back to the Note in Box 1.)

Box 15: State IL  Employer’s State ID number:  Same as Box b

Box 16: State Wages, Tips, Etc:  Same as Box 1

Box 17: State Income Tax:  Amount withheld from paycheck – If the pastor had no State Withheld Leave Blank

Box 18: Local Wages, Tips, etc.: Leave Blank

Box 19: Local Income Tax: Leave Blank

Box 20: Locality Name: Leave Blank

Income Tax Regulations – Christmas and Other Special Occasion Gifts

“The income tax regulations specify that Christmas bonuses paid by an employer are taxable income for the recipient. Treas.Reg.1.61-2(a)(1) i.e.: A federal appeals court ruled that congregational offerings collected four days each year and presented to a pastor represented taxable compensation rather than tax-free gifts.”

“Many special-occasion gifts to ministers and lay church employees are funded through members’ contributions to the church (i.e., the contributions are entered and recorded in the church’s books as cash received, and the members are given charitable contribution credit). Such gifts should always be reported as taxable compensation and included on the recipient’s Form W-2 or 1099-MISC and on Form 1040.”

Person to Person Gifts

“Members are free to make personal gifts to ministers or lay employees, such as a card at Christmas accompanied by a check or cash.  Such payments may be tax-free gifts to the recipient (though they are not deductible by the donor), especially when small in amount.”         

Provided by 2016 Church & Clergy Tax Guide by Richard R. Hammar, J.D., LL.M., CPA – Chapter 4 Income

What Are Restricted and Unrestricted Fund Accounts?

A nonprofit is no different than any other business in that you must make ends meet.  Here’s a question you probably haven’t considered:  In all of your efforts to keep the lights on, pay salaries, etc. could it be that you are misappropriating funds without knowing it? 

“Some charities have experienced donor backlash when it appeared that donors were donating for a particular purpose only to find out that the charity used their gift in an unrestricted way.  There are good reasons to be entirely clear about how the charity plans to use the gift when making a solicitation.  If a donor restricts a donation to a particular purpose and the nonprofit does not comply, the donor can demand a refund.  The donor can take legal action if needed and report the charity to the Office of the Attorney General in the state where charity resides.” Joanne Fritz

Should your congregation accept every gift that comes its way? It’s hard to say ‘no thank you!’ to donors, but sometimes…that’s the more prudent path.  There are some kinds of gifts that your congregation simply may not want to – or should not – accept. Some gifts may result in more hassle and expense than benefit to the organization.    This is where a well-considered “gift acceptance policy” governing designated or restricted gifts can be a help.

According to Frank Sommerville, JD, CPA, “The policy should have two components: one governing church created designations or restrictions and one governing donor created designations or restrictions. The church should have a procedure for approving all designated gifts that are created by the church before any funds are solicited.”  Under state law, one must first determine whether the church, or the donor, imposed the designation.  The church may only remove designations in three ways: (1) with the written permission of the donor(s), (2) by court order, or (3) with the permission of the state Attorney General. If the designation is imposed by the church on itself, then it is bound to that designation.“

If a donor gives funds with a stipulation on purpose or time frame – whether or not there is an actual written document, those funds should be segregated in the organization’s books, and you are not allowed to use those funds for another purpose (i.e. meeting payroll).  Note:  The funds don’t have to be physically segregated in a separate bank account, they just have to be segregated in the organization’s general ledger.  There are three types of funds to be attentive to:

  1. Temporarily Restricted Funds can have donor-imposed restrictions. This means that the donation can be used for a particular purpose or program or can be used in a specified period (i.e. within one year).   Examples of gifts could include: special scholarship fund, building campaign, hurricane response, etc.
    1. The donor can determine if a donation is to be restricted or not.  The donor can state this in a letter, make an explicit agreement with the nonprofit, or write the designation on the memo line of the check.
    2. Grants from foundations are restricted to a particular program or purpose – with documentation that accompanies the award.
  2. Unrestricted Funds are donations the nonprofit may use for any purpose. A board designated fund (set up through finance & council) will appear on the financial statement as “unrestricted” because the limitation was imposed by the board of directors rather than the donor.
  3. Permanently Restricted Funds never expire.  These funds usually go into an endowment that permits the organization to use the interest and investment returns to support a particular activity or the organization in general.

Information provided in this document by;

Frank Sommerville, JD, CPA, Rules for Designated Gifts

Karen Kowgios partner at FK Partners LLP, January 2010 issue of New York Nonprofits

Joanne Fritz, Restricted and Unrestricted Funds for a Nonprofit, 1/09/2017

The information contained in this newsletter is subject to change, as is the case with changes in best practices and legal requirements affecting congregations and nonprofit finance. This newsletter is not a substitute for professional accounting advice or financial advice that every congregation should seek based on their needs and circumstances.                                                                                              Prepared by June M. Cain, Synod Bookkeeper