August 2018

This Quarter’s Topics

2018 Tax Changes

IRA’s

Spouse Provided Health Coverage

IRS/State Notices

2018 Tax Changes
IMPORTANT:  Your employer needs to reimburse your business expenses.
The 2018 tax season will be filled with change.  One of those changes is the elimination of form 2106, Unreimbursed Employee Business Expenses.  This will impact federal income tax but we are not certain if or how it may impact Self-Employment tax.   We do know that the best way to protect yourself from paying tax on your business expenses is to have the church/employer reimburse you rather than planning to take your expenses to the tax return.

IRA’s
A church should provide some type of retirement for its pastor(s).  We always recommend a 403b.  See our website for more information about this:
http://ssfoundation.net/pastors?qa_faqs=403-b-versus-an-ira
When a church elects to make contributions to an IRA on behalf of a pastor, those contributions are not considered employer provided retirement.  An Individual Retirement Account is an Individual plan not an employer plan.  Any amount contributed to an IRA would be included as salary to the pastor.  The pastor may be able to deduct the contribution on his tax return so that he does not pay federal income tax on the contribution but he cannot deduct it from his SE (Self-Employment) income.  A pastor will pay SE tax on contributions to an IRA.

Spouse Provided Health Coverage
A church cannot reimburse amounts from a HRA for an expense which is paid with pre-tax dollars.  When a pastor’s wife is able to obtain health insurance thru her employer a church cannot reimburse any costs for this coverage tax-free.  This is because his wife’s payroll deduction is pre-tax (before taxes).  Amounts paid to a pastor to cover his wife’s employer’s health plan is simply salary (a pay increase) and is included as wages on his W-2.

IRS/State Notices
It is important that you contact us if the IRS or your state tries to change your tax return.  If you receive a notice for penalties or interest you do not need to contact us (although you are free to do so).  But if you receive a notice changing something we have prepared please let us know.  If the amounts you have given us on your tax data questionnaire are correct and you have sent us everything we need then most likely the change is an error.  We can formulate a response for you to send to fix an error.  It is especially important that you contact us if the IRS or state tries to send you money you are not expecting.  If we fix the error up front, you will not receive a bill asking for the money back (with interest) once they discover their error.

Sincerely in Christ,

James W. Rickard

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