Clergy Compensation An Overview Know the Basics Pensions and - - PowerPoint PPT Presentation

Pensions and Benefits USA Church of the Nazarene

Clergy Compensation An Overview

Know the Basics

Pensions and Benefits USA Church of the Nazarene

The Three “P”s of Local Church Expenses

Personnel Property Program

Note: Allocating the cost

• f having a Pastoral

Ministry may include some expenses in each

• f these categories.

Pensions and Benefits USA Church of the Nazarene

Some Ground Rules

• The cost of having a pastoral ministry includes two parts:

– The cost of what is done: Program costs (and maybe Property costs) – The compensation for who does it (Memo #4): Personnel costs

• Ministers have a unique tax status (Memo #12 and Busby’s Tax Guides).

– First: Determine IRS “minister” status – Income Tax: Employee (Form W2) – Social Security Tax: Pays as if self-employed (SECA)

• The local church employer must remain engaged in the process.

Pensions and Benefits USA Church of the Nazarene

It Matters How “Pastoral Ministry” Expense is Paid!

Third: Partially Tax-Favored Benefits Finally: Salary Finally: Salary First: Expense Reimbursements Second: Tax-Favored Benefits

Pensions and Benefits USA Church of the Nazarene

• 1. Expense Reimbursements

Local Church Program Expense

• Set up an Accountable Expense

Reimbursement Plan (Memo #11).

• The Five “W”s of accountability:

– What, Why, When, Where, Who

• Avoid:

– Receiving any budgeted “balance” at yearend – “Reclassifying” funds after payment

Pensions and Benefits USA Church of the Nazarene

• 2. Fully Tax-Favored Benefits

The First Level of Compensation

• Why? Dollars are free of both SECA and

Income Tax liability.

• What Benefits?

– “Health and Welfare” benefits (e.g., insurance) – Caution: New rules regarding “health benefits” per ACA – 403(b) Plan contributions (clergy only for SECA) – Some “cafeteria” benefits (e.g., dependent care) – Caution: Use the services of a qualified benefits provider or legal counsel when setting up local church-sponsored benefit plans.

Pensions and Benefits USA Church of the Nazarene

Nazarene Senior Pastor Analytics Towers Watson Study Results

Pensions and Benefits USA Church of the Nazarene

• 3. Partially Tax-Favored Benefits

The Second Level of Compensation

• Housing and/or Housing Allowance

– Memos #1 and #13

• Three tests for exclusion:

– Designated in advance – Spent on qualifying expenses – Does not exceed Fair Market Rental Value

• Subject to SECA taxation
• Certain expenses paid with housing allowance may

also be deductible.

Pensions and Benefits USA Church of the Nazarene

• 4. Fully Taxable Remuneration

Final Level of Compensation

• Cash Salary!
• How much is enough? (Memo #7)

– Principle of thirds – Reflects the market value of the work – Is reviewed “at least” annually – Review includes performance (Benchmarks)

http://compstudy.lifeway.com

Pensions and Benefits USA Church of the Nazarene

The Bi-vocational Pastor

• Depending on one’s definition, as many as half of

clergy are “dual employed.”

• Reimburse expenses first, then take tax-favored

benefit payments (e.g., disability insurance).

• Idea: Report your pastoral work and your secular

work to your board.

• Don’t forget about retirement!

Pensions and Benefits USA Church of the Nazarene

It Matters How “Pastoral Ministry” Expense is Paid!

Third: Partially Tax-Favored Benefits Finally: Salary Finally: Salary First: Expense Reimbursements Second: Tax-Favored Benefits

Pensions and Benefits USA Church of the Nazarene

Serving Those Who Serve