Did you know these legal and financial tidbits?
by C. Conrad Martin
Are churches a 501c3 charity?
Did you know that churches are automatically a charitable organization (or a 501c3 organization) and do not need to apply for their own 501c3 status? According to the Internal Revenue Service (IRS) the only requirements for a church to be considered a charity is that they be organized and operating exclusively for charitable or religious purposes, not sharing earnings with individuals, and not influencing legislation. So in simple terms, if your church is following the above then your church is a charity.
Sometimes donors want proof that a church is indeed a charity. How can you prove that your church is a charity? If your church is a member congregation of Franconia Conference, conference staff can provide your church with a document stating that your church is in fact a church as defined by the IRS and therefore a charity. This document works to satisfy the needs of donors.
What is a ministers housing allowance, who is eligible to claim this, and how much can be claimed?
Did you know that ministers, as defined by the IRS, can designate a portion of their gross salary as a housing allowance which is not subject to federal income taxes? In the past churches used to provide housing for their ministers, however in more recent years ministers often have their own housing arrangements. Therefore a housing allowance was created to provide a similar benefit for those ministers.
Who is a minister as defined by the IRS? A person who: 1) is ordained, commissioned or licensed, 2) administers the sacraments of the church, 3) conducts religious worship, 4) has management responsibilities in the local church or parent denomination, and 5) is considered to be a religious leader by the church or parent denomination. Number 1 is definitely required and some balance of the other four is factored in.
How much can a minister claim for housing allowance? If the minister rents their home, then the fair market rental value can be included. If they own their own home, then the down payment, mortgage payments, real estate taxes, and property insurance can be included. Also included in the calculation of housing allowance can be utilities, furnishings and appliances, structural repairs and remodeling, yard maintenance and improvements, maintenance items and homeowners association dues.
Who designates this housing allowance? The governing body of the church designates how much of the minister(s) income is allowed to be designated for housing. This is to be done by official action prior to January 1. If a church fails to do this in a timely manner, housing allowance deductions are not retroactive, but can be applied from the approval date forward. How does the governing body know how much to declare? The minister should calculate their housing costs, as mentioned above, and submit this request to the governing body.
For more details on these and other legal and financial tidbits, contact Conrad Martin, Director of Finance, Franconia Mennonite Conference.
