Ensure your church’s financial tasks are covered even in the midst of the busy holidays
Spend five minutes reviewing these two steps. None of us wants to lose members because someone on our team didn’t take care of business. | by Elaine L. Sommerville, CPA
In so many areas of a church’s operations, the holidays are not a time of rest and relaxation. The holidays bring a flurry of holiday related activities layered into regular operations. While juggling the increased church activities, those in charge of church finances must also deal with a flurry of end of the year administration tasks. Some tasks must or should be completed in December and others must or should be completed in January. Planning for the tasks can make all the difference in the world.
Here is a handy list to go over with your team.
- December Tasks
Fringe Benefit Review – Churches offer many perks throughout the year; some obviously affect an employee’s pay and others may go unnoticed. December is the time to review all the benefits provided to any employee during the year and try to include the value of the benefit in taxable income. Some regularly overlooked benefits include the church’s paying camp fees for the children of employees; special discounts at the church’s school or daycare; and both cash and non-cash staff appreciation gifts provided throughout the year (don’t forget the Pastor’s Christmas present). All items provided should be reviewed and, if taxable, steps must be taken to have them included in the final payroll reporting through the Form 941 and Forms W-2.
Many churches either mistakenly avoid reporting the benefits or take this step in January rather than December. For churches using third-party payroll providers, payroll reports are often created electronically early in January, so locating the benefits in January results in filing amended payroll reports. Identifying the benefits in December also allows the value to be included in the year’s final payroll allowing for related taxes to be withheld from the non-minister employees.
Housing Allowance Designations – Designating housing allowances for the church’s ministers is a definite December task. Nothing is as unforgiving as the undesignated housing allowance. Simply stated, the housing allowance that does not get designated does not exist. Therefore, the housing allowance must be designated and documented in writing before the first paycheck of the new year. To assist with future years, a church may create an open-ended designation covering “2020 and subsequent years until modified.” This safety net of a designation cures future oversights.
Other Compensation Designations – All elements of compensation should be properly approved by the appropriate authorities. For the church’s executive leadership team, this requires approval by the appropriate board or committee. Documentation of compensation should include documentation of all cash and non-cash compensation and benefits to be provided in the upcoming year.
Independent Contractor Review – Since the deadline for filing Forms 1099-Misc has been moved from February 28 to January 31, identify recipients in December rather than waiting until the end of the year. Early identification provides for time to update records with addresses and social security numbers/employer identification numbers before it is time to prepare the forms. Do not forget to flag payments to attorneys for Form 1099-Misc filing. Even if the attorney is incorporated, Form 1099-Misc is still required to be filed.
Fringe Benefit Enrollment – Many fringe benefit plans require participants to enroll before the start of the plan year. For example, cafeteria plans/Section 125 plans require participants to elect amounts before the first of the plan year. For many churches, benefit plans run on a calendar year so the actions must be taken in December.
DOL Employee Reclassifications – Effective January 1, 2020, the minimum salary test for an exempt employee (excluding any employee meeting the ministerial exception test) goes from $455 per week to $684 per week. This may translate into employees currently treated as exempt employees to being nonexempt employees. The minimum salary test is not prorated for part-time employees. Churches should review any employee treated as an exempt employee and making less than $684 per week for possible reclassification. Nonexempt employees may be paid on a salary basis, but a church must keep time records on all nonexempt employees and may not offer comp time in a separate work week from when overtime is worked. Please note: these rules do not apply to any employee that meets the DOL definition of a minister.
- January Tasks
December’s Incomplete Tasks – If anything on the December list was not accomplished, start with that list!
Wage Reporting – Form W-2, Form 941 for the 4th quarter of 2019, and Form 1099-Misc are due to both the employees/workers and the Social Security Administration/IRS by January 31, 2020.
Charitable Contribution Reporting – January is the time to issue contribution receipts to members and other donors. While there is no legal deadline on the church issuing the receipts (except in very few instances), donors believe there is a legal obligation to issue the receipts by January 31 each year. Contribution receipts are issued to assist donors in meeting their receipting requirements for claiming donations.
Here are tips for preparing the charitable contribution receipts for 2019 contributions:
- Close the Books (at least the donor records!) – Charitable contributions must be received through electronic or physical delivery by December 31 each year and those still coming through the mail must be postmarked by December 31. Do not allow donations to be delivered after December 31 outside of these parameters and posted to the 2019 donor records.
- Qualifying Receipts – The receipt will not serve the donor unless it is a “qualifying” receipt, so make sure it includes:
- Name and address of the donor
- Listing of dates and amounts for all contributions; and
- The requisite statement “There were no goods or services given in exchange for the donations other than intangible religious benefits.” (Failure to include this statement results in the donor’s forfeiture of the contribution deduction.)
- Additional Items for Receipts – While not required, IRS agents also look for the following to confirm the receipt is genuine:
- Name and address of the church;
- Church logo; and/or
- Statement signed by the church.
- Receipts for IRA Qualified Charitable Distributions (QCD) – IRA owners older than 70 ½ may give to the church directly from their IRA without incurring income tax on the distribution. However, the gift to the church is also not deductible by the IRA owner. The gift still requires a qualifying receipt, but it should not be included on the IRA owner’s regular contribution receipt. The gift should be documented separately to avoid confusion as to its deductibility by the donor and to meet the receipt requirements for the owner.
- Receipts for Non-cash Donations – Often receipts or acknowledgement letters are issued during the year when a non-cash gift is given. However, if the acknowledgements have not been issued, January is a good time to issue those. The acknowledgment should only describe the non-cash gifts given and should include no value of the gift. The acknowledgment must include the mandatory “no goods or services” statement as described above.
- Volunteer Thank You Letters – Churches thrive due to the tireless services provided by volunteers. Often volunteers pay for various expenses as a part of their services to the church. A thank you letter to them acknowledging their service and their willingness to pay for various out-of-pocket expenses should include the “no goods or services statement” and may thereby assist volunteers in deducting any out-of-pocket expenses they have incurred.
Plan for Annual Financial Statements – Many churches wait in contacting their outside CPA firm regarding the preparation of the annual financial statements. Whether the CPA firm is going to prepare a compiled, reviewed or audited financial statement, contact the firm and schedule the upcoming work. Determine the work required of church personnel for the CPA firm and assign the various tasks.
The end of the year is a hectic time of year for every church staff member. Planning for the above tasks will help a church’s financial team successfully navigate their specific tasks in winding down 2019 and gearing up for 2020.