ECCU Blog

A growing number of nonprofits are fighting to keep their property tax exemption status as they become the target of tax collectors looking to compensate for increasing deficits in state, county, and local budgets. 

For example:

• In California, a New York Times article says some nonprofits have been denied property tax exemptions because the state believes the nonprofit is providing “insufficient” benefits to local residents.
• The city of Boston has asked the largest 45 nonprofits for “voluntary” payments in lieu of taxes and has extended the program to cover any nonprofit with $15 million in revenues.
• The city of Tacoma is considering reducing the property tax exemption for nonprofit healthcare providers.
• In 2010, Hawaii unsuccessfully attempted to impose a new tax of 1% on nonprofits.
• According to the National Council of Nonprofits, some of the top policy issues faced by nonprofits are: Shifting fiscal obligations, attempts to impose new taxes, and attempts to reduce the property tax exemption.
• The Alliance Defense Fund is currently defending a church in Maine because their church property was given a property tax exemption but their parking lot and parsonage were not.

What challenges has your ministry faced regarding property tax exemptions or new taxes?

While we are all called to ministry in our local church, there are specific requirements for determining whether you are a “minister” in the eyes of the IRS.

This matters, of course, because it affects how you file your taxes. For federal tax purposes, a minister is defined by the IRS as an individual who:

• Is a “duly ordained, commissioned, or licensed minister of a church.”  (Note that the ministry must be organized as a church for the minister title to apply.)
• Performs sacerdotal functions (such as marriage and funeral services, dedicating infants, baptizing, and serving communion).
• Conducts religious worship.
• Manages responsibility in the control, conduct, and maintenance of religious organizations (including the religious boards, societies, and other integral agencies of such organizations), under the authority of a religious body constituting a church or denomination.

If this describes you, then both you and your church should handle income and tax reporting per the IRS rules: 

• Ministers are treated as self-employed for tax purposes only. (Don’t confuse this with the common-law test to determine whether an individual is an employee or self-employed. Commonly ministers are also employees.)
• Ministers pay taxes under the Self-Employment Contributions Act (SECA) when they file their federal tax returns—which means churches should never deduct FICA-type taxes (Social Security and Medicare) for a qualified minister.   However, federal, state, and local tax withholdings do apply to the minister who is an employee. (It is possible for a minister to be exempt from SECA in only a few situations.)  

Questions? Use this information as a springboard for further conversation with your accountant, tax preparer, or tax attorney.

I’ve posted blogs in the past about taking advantage of a provision in the new Affordable Care Act. Ministries that qualify have until May 15 to apply to claim the credit of up to 25% of healthcare premiums paid for their employees. While you always need to read and understand the fine print on measures like this, I want to encourage you to take advantage of this credit if your ministry qualifies.

I’ve found two good videos, one featuring attorney Richard Hammar, that provide a good review of this credit for ministry organizations. The other is from the IRS.  Both videos provide a good summary and help you understand whether your organization can qualify for this credit.

With the May 15 deadline fast approaching, now is the time to see if your ministry qualifies for this credit so you’ll have time to complete the necessary forms.  Even if your ministry doesn’t file an annual tax return, you may still be eligible for this tax credit as a refund. Check it out.

See the IRS for the applicable forms and information to claim this credit.

An upcoming “lunch-and-learn” event with the Orange County chapter of the National Association of Church Business Administration (NACBA) offers church business administrators and financial decision makers a valuable learning and networking opportunity.

In addition to a complimentary lunch and time to network with ministry peers, you’ll hear the latest church legal and tax updates from attorney and CPA Frank Sommerville, one of the nation’s top experts on non-profit tax and legal issues.

This event is scheduled for Thursday, March 22, from 11:30 a.m. to 1:30 p.m. at Mariners Church in Irvine, California (5001 Newport Coast Drive).

Space is limited. Reserve your spot by emailing Michael Welles at mwelles@calvarylife.org. To learn more, visit www.eccu.org/oc-nacba-lunch.

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.