ECCU Blog

If your ministry accepts debit or credit cards for donations, café or bookstore purchases, or other ministry activities, you will most likely be required to report the total payments made with the cards to the IRS starting in 2012.

According to Becky Kopplin, vice president at The CashLINQ Group, “As one part of the Housing Assistance Tax Act of 2008, merchant processors are now required to report gross payments by credit or debit card to the IRS. This requirement applies to all merchants, including non-profits.”

Kopplin adds, “In order to report this information, the merchant processors must match the ministry’s legal name and tax identification number (TIN) to the IRS record. If the information provided does not match, the merchant processor may be penalized and/or credit and debit card payments made to the ministry may be subject to a 28 percent backup withholding.”

Reporting this information to the IRS does not change your other annual IRS reporting requirements. For example, if you are a church, you will not also be required to complete IRS Form 990 just because you accept debit or credit cards, unless of course you have unrelated business income tax (UBIT) due.

These regulations have been put in place to help ensure businesses adequately report taxable income to the IRS. In most cases, ministries do not utilize debit and credit cards for taxable business but are still required to report.

Kopplin explains, “The best way to verify that your merchant processor has the correct information is to provide them with any notice from the IRS that contains your legal name and TIN, like a 501(c)3 letter, a tax determination letter, or a Request for Tax Payer Identification letter (IRS Form W-9).” 

The 28 percent backup withholding will go into effect in 2013. For more information on this new requirement, see irs.gov.

Nearly every church has set up a fund for benevolence purposes, but often the program for disbursing those funds is not as effective as it could be at meeting people’s needs. By reviewing my church’s process and disbursements over the past many years, I’ve come up with this list of best practices for evaluating your benevolence program:

• Establish a benevolence policy that empowers or delegates authority, ensures accountability and confidentiality, and sets boundaries rather than rules.
• Use a separate budget to track benevolent donations and disbursements.
• Take a team approach to benevolence ministry without creating a burdensome process.
• Report success stories to your donors but maintain confidentiality.
• Identify resources in advance, such as local businesses or individuals who have agreed to assist with specific needs.
• Keep records of assistance provided and follow up with those you help.
• Learn from your mistakes.
• Allow room for God to guide.
• Identify real needs, not just temporary issues or symptoms, then look for ways to help recipients “learn to fish.”
• Help recipients be accountable with agreed-upon next steps.
• Integrate your existing ministry outreach programs as well as other local churches into your benevolence efforts.
• Set aside funds to be used in case of local community disasters.

Providing a helping hand to those in need is a critical part of what we are called to do as followers of Christ. However, as you have probably learned, providing money by itself rarely meets people’s real needs.

What have you found to be critical success factors for your benevolence ministry?

PS: You are only required to do any tax reporting when benevolence gifts are provided to a staff member. Those gifts should be reported on IRS Form W-2.

Yes, this is a blog post about the IRS. So, understandably, I’m afraid I might lose you before we even begin. Please don’t check out too soon, though, because here’s the bottom line: The IRS actually has a new program designed to save you hassle and money. 

Good, you’re still reading. Now let’s talk about why this program might be important to your ministry. 

In the nonprofit world, especially in churches, it isn’t uncommon to find misclassification of workers—usually meaning an employee is mistakenly classified as an independent contractor. Why is it a problem? According to the IRS, “Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties for failing to pay employment taxes and for failing to file required tax forms.” 

The new IRS program allows employers to resolve past worker classification mix-ups. By making a minimal payment to cover past payroll tax obligations, employers can come back into compliance rather than waiting for a dreaded and painful IRS audit. 

If your ministry is eligible for this new program, you can obtain substantial relief from past-due federal payroll taxes. Once accepted into the program, you will pay an amount effectively equaling just over one percent of the wages paid to the reclassified workers for the past year. No interest or penalties are due, and you will not be audited on payroll taxes related to these workers for prior years. 

(Need help determining if you have classification mix-ups? In a blog post I wrote addressing the issue last year, I included a resource from the IRS to help distinguish employees from independent contractors.) 

There you have it. If you discover your ministry has employees who are classified as independent contractors, take advantage of this program to avoid hassle and expense and get into compliance. After all, how often does the IRS try to make things easier for you?

With political candidates now campaigning in earnest and ballot propositions being developed, churches once again face the tension of whether or how to address political issues. In this context, Richard Hammar’s recent brief article titled “The Value of Tax-Exempt Status” in online ChurchLawandTax.com is worth reading. 

Hammar, a leading specialist in legal and tax issues affecting churches, lists 13 consequences of churches that lose their tax-exempt status. Among them: “Donors no longer could deduct charitable contributions they make to the church.” 

How does your church work through questions of whether or how to become politically active?

This is the third blog in our series about presenters at the upcoming 2011 Financial Forum for Ministries. Here are John Butler’s email responses to a series of questions about his presentation. John is tax counsel with CapinCrouse LLP. His session is titled, “Tax and Legislative Developments: Long-Term Issues and Hot Short-Term Issues.” 

MBG: How will your presentation help attendees better serve their ministries? 

John: They will be more alert to possible issues and opportunities presented by tax and regulatory changes.                                                 

MBG: What are three important takeaways attendees will learn during your presentation?

John: The first takeaway will be the current status of several major issues affecting religious organizations. A second will be the potential for “refunds” to smaller organizations of a portion of their health insurance premiums. Finally, they’ll walk away with some wisdom for handling IRS notices. 

MBG: What is one suggestion you’d offer to help attendees gain the most from this learning experience? 

John: People often hear great ideas and learn important things at conferences, many of which are good or even necessary. But no one can do everything. Therefore, instead of trying to go home and do many things, plan to leave the Forum with three to five specific action steps that can be implemented at your ministry in the next 30 days. Be concrete and specific. Actually accomplishing those three to five things will benefit your organization far more than a long list of unfulfilled desires. 

MBG: What do you think are the biggest challenges facing ministries today?

John: Our resources—people, time, money—seldom increase at the same pace as people’s expectations. The people I’m talking about are donors, staff, government, even ourselves.   

What is the biggest challenge your ministry faces regarding taxes or government regulations?