September 12, 2008
Guest Post: Social Security - In or Out?
Recently someone asked about the advantages and disadvantages of a minister opting out of Social Security. It's a common question that I'd like to address is further detail.
First, opting out of Social Security is a very personal decision and you will find a lot of differing opinions on this issue (primarily between those who have opted out and those who have not).
In the past, some have been wrongly encouraged to opt out purely as a tax savings measure. While this seemed like a good idea at the time, many of those ministers are now reaching retirement and have not saved nearly enough to provide for themselves and their families during retirement. Opting out according to the IRS should only be a as a result of opposition due to religious principles or conscientious religious objection to public insurance.
The Evangelical Council on Financial Accountability sums it up like this:
"A few clergy may qualify to elect out of self-employment tax under Section 1402(e), the timing of which is conditioned on their self-employment income in the Social Security sense, not the income tax sense. Therefore, Form 4361 must be filed by the due date of the minister's income tax return for the second year in which the minister had $400 or more of net ministerial income. To opt out of Social Security, a minister must certify that he opposes, either conscientiously or because of religious principles[emphasis mine], the acceptance of any public insurance (with respect to services performed as a minister), including Social Security coverage. Either opposition must be based on religious belief."
Guidestone Financial Resources of the SBC, also provides a great resource on helping ministers to make this determination. Guidestone offers this caution:
"In very limited circumstances, ministers may "opt out" of Social Security or exempt themselves from self-employment (SECA) taxes with respect to their ministerial earnings. However, very few ministers qualify for this exemption. Many new ministers apply to opt out without knowing they are ineligible. Ministers may apply to opt out only if they are opposed on the basis of religious considerations to accepting benefits from Social Security[emphasis mine]or any other public insurance system that provides retirement or medical benefits. They cannot apply if their sole objection to participation in the Social Security program is payment of taxes, or any other reason."
Another issue that I have seen in denominational life is that many organizations/churches provide a supplement to assist the minister with 1/2 of the Social Security taxes (A Social Security Stipend). In some organizations, the ministers who had "opted out" of Social Security did not receive this stipend, as it was reserved only for those who "had to pay the tax". So in effect, the supplement only helped those who were still in Social Security and the ones who had opted out were on their own completely. (Obviously, this does not seem totally fair, but that is often the way life is.)
If a minister opts out of Social Security (assuming they do not have another secular job) they need to replace Social Security with disability insurance, retirement savings, survivor benefits and some life insurance for their families. Also, normally a nonworking spouse can receive ½ of their working spouse's social security. If the minister opts out of Social Security, the non-working spouse will not receive any social security either and in case of the death of the working spouse, will have to rely on savings or the generosity of others to survive (See Mission: Dignity SBC) . Attorney and CPA,
If you still have questions and would like to discuss this further, e-mail me. I'd be happy to discuss them with you further.
This document has been prepared by Bill Townes, CPA, MBA as a ministry of the North American Mission Board. His ministry efforts are made possible through your gifts to the Cooperative Program and the Annie Armstrong Easter Offering.
More posts from Bill Townes:
Rules and timing of charitable gift receipts
Connecting stewardship with church planting
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August 13, 2008
RULES AND TIMING OF CHARITABLE GIFT RECIEPTS
Note: I met Bill at a recent SDA meeting. After just a few days of interacting with him, I knew I had to find a way to capture his knowledge on the blog. What I think is really cool is that he gets to help new and small churches in North America with business administration and tax related questions--a service that once was only available to large churches who could afford a retainer agreement with a local CPA firm or a full-time staff person. It makes me proud to know that our CP dollars are contributing to this kind of ministry.
Question: Sometimes we have church members who bring in gifts at the beginning day of the new year and ask for contribution credit for the prior year. What should we do?
NEW IRS Rules:
In 2007, The Pension Protection Act of 2006 instituted more stringent requirements for substantiating donor gifts. Basically, the act now says that all cash gifts, (irrespective of the amount - no $250 threshhold) must be substantiated with
(In the past a donor could just keep a written list of their cash contributions)
(1) either a bank record (e.g. cancelled check) or a written communication from the charity (2) showing the charity's name, date of the contribution, and the amount of the contribution (and a notice that the donor received no tangible benefit for the contribution). All gifts of $250 or more must be substantiated by an acknowledgement from the charity (a donor's cancelled check will not be adequate documentation).
Based on this new rule, your donor does not necessarily need your contribution statement to deduct their year end charitable contribution to the ministry (if gift is under $250), as long as they have their cancelled check. However, as a donor, they probably want to have that recorded on their giving statement to avoid any potential issues.
Timing of Contributions:
IRS Regulation Sec. 1.170A-1 Charitable, etc., contributions and gifts; allowance of deduction states that a charitable contribution "actually paid during the taxable year is allowable" as a tax deduction. What this means to the charity is that they should use the date when they actually take possession of the gift. For IRS purposes the key is when the gift is "delivered" to the charity. IRS Reg Sec 1.170A-1(b) says:
(b) Time of making contribution. Ordinarily, a contribution is made at the time delivery is effected. The unconditional delivery or mailing of a check which subsequently clears in due course will constitute an effective contribution on the date of delivery or mailing.
When the U.S. Postal service is used to mail a check, they are considered to be the "agent of the recipient" and therefore the date of the contribution can be considered to be the date that it was actually mailed.
Year End:
The only time the actual timing of the contribution is usually a concern is year end. This is also the time when most mission organizations are closed for the holidays, creating a unique concern for donors. In order to ensure that gifts are recorded in the proper time period, it is best to use the "U.S. Post office date on the envelope" as the evidence of transfer. I would not rely totally on the date on the check itself, because that can be written in as any date by the donor. But, any checks that are actually dated in December, but received in January would cause me to look a little more closely at the envelope to ensure that I record it in the proper period.
One option that many churches have found workable is to include an offering time in their New Years Eve Services. This allows any last minute donors an opportunity to have their gifts credited to the proper period and also allows members the opportunity to give an offering back to the Lord in expression of their thanks for what God has provided.
This document has been prepared by Bill Townes, CPA, MBA as a ministry of the North American Mission Board. You can contact him at wtownes@namb.net if you have any further questions. All information in this document is provided on the basis that while it is generally believed to be correct, the North American Mission Board assumes no liability for its use. This document is intended to provide churches, pastors, and staff with current and accurate information about the subjects covered. However, such information is not intended to be sufficient for dealing with a particular legal problem, and the authors and distributors do not warrant or represent its suitability for such purpose. It is being provided primarily for illustrative purposes. As in all legal and tax matters, if there are any questions related to specific matters, professional advice should be sought from a qualified attorney, CPA or other competent individual.
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