As tax season is upon us, it is important to be aware of two things a church does that may affect the taxable income for congregational employees/pastors — one taxable and one a pre-tax deduction.
Love Gifts/ Offerings
Some churches give their pastor(s) a “love gift” or “love offering” in special appreciation for the many things they do for their congregation. These gifts come from either the pastor’s employing church or from individual members of the church. Sometimes these gifts come from a special offering taken by the congregation for their pastor. Sometimes an individual member will feel the need to show their appreciation personally in a financial way, sometimes even unbeknownst to the congregation. In almost every case, the IRS will view “love gifts” as compensation for services rendered and therefore taxable. If coming from the church as the employer, the church needs to either include the love gift in the calculation of the W-2 or issue a 1099-MISC to the pastor. If coming from an individual, the pastor needs to include the gift in their taxable income. If you need further clarification, consult your tax accountant.
Section 125 Flex Plan
If your congregation offers a medical insurance plan to their employees and also charges them a portion of the cost for the premium, those employee premium costs may be deductible from the employees’ taxable income. If your congregation offers as part of their medical insurance plan a Health Savings Account (HSA), the employees may contribute personally into their HSA through payroll deductions and those payroll deductions may be deductible from the employees’ taxable income. The key is, the church needs to have a Section 125 Flexible Benefits Plan documented. Sometimes this is called a Cafeteria Plan. Whatever it is called, it must be documented. There are many companies that can write such a plan for your church, one of which is Everence. Contact your local Everence Stewardship Consultant for more information.
Any time you have questions about your church finances, contact Conrad Martin at the conference office and he will help direct you to the answer.
A federal judge in Texas issued an injunction last week blocking the December 1 implementation of a new salary threshold that would have made millions of more workers, including nonministerial church employees who meet certain criteria, eligible for overtime pay.
The injunction puts the threshold change on hold until its legality can be determined by the judge. Some speculate the new threshold likely won’t survive, but the outcome remains uncertain. The current threshold for the “white-collar exemption” of $455 per week, or $23,660 per year, remains in effect in the meantime.
There is a new law regarding overtime pay which will take effect December 1, 2016. Are you aware of how it affects your congregation? Here is the latest information we have on that new ruling.
Non-credentialed employees: All employees (see exceptions below) who work over 40 hours a week are to be paid overtime. Previously, this did not include executive, administrative or professional persons paid by a salary and those who were making over a certain threshold. The new ruling now includes all of these categories and significantly raises the threshold to $47,476, including bonuses and commissions. What this means is that every employee paid less than $47,476, regardless of whether they are hourly or salaried, are eligible for overtime.
Congregations have three options with regard to this law:
Limit non-credentialed employees’ hours to 40 hours per week.
Increase their employees’ pay to the $47,476/year threshold, to be exempt from paying overtime.
Pay employees time and half for hours worked in excess of 40 hours per week. For those who are salaried, the employer needs to calculate what the hourly rate would be.
Special Notes: All employees (salaried or hourly) who are paid less than the threshold should be required by their employer to track their time, to be able to verify the number of hours worked over 40 per week. Church employees cannot get around this ruling by volunteering some of their time, unless they are volunteering for duties that are not part of their regular job. Some employers offer their employees time-off in a later pay period as compensation for the hours worked over 40 per week. This is not allowed by the new law. Any time worked over 40 hours per week, must be paid in that pay period as overtime.
Ministerial Exemption: If you have credentialed persons employed at your church, this new ruling does not affect them. Credentialed persons include pastors, ministers, chaplains, LEADership ministers, etc.; anyone who has received their credentialing from Franconia Conference is included in this category. They are covered under what is called the Ministerial Exemption and are, therefore, not subject to Federal Labor regulations. This will continue to be the case until the government changes the ministerial exemption clause. Employees who are not credentialed do not qualify for the ministerial exemption.
BREAKING NEWS: This is a constantly changing issue. The most recent information indicates that two separate lawsuits have been brought against the US Department of Labor, challenging this ruling. While it is unlikely that these lawsuits will change the ruling, they may delay its effective date. We will try to keep you informed as new information becomes available.
If you have questions concerning this ruling or other congregational financial matters, feel free to contact the Franconia Conference Director of Finance, Conrad Martin, at email@example.com.
The subject of giving comes up many times in the scriptures, but do you know how we are supposed to give? Here are just a few of the scriptures on how we are to give:
Cheerfully – 2 Corinthians 9:7 Each of you must give as you have made up your mind, not reluctantly or under compulsion, for God loves a cheerful giver.
Expectantly – Luke 6:38 Give, and you will receive. Your gift will return to you in full—pressed down, shaken together to make room for more, running over, and poured into your lap. The amount you give will determine the amount you get back.
Extravagantly – Mark 12:41-44 Sitting across from the offering box, he was observing how the crowd tossed money in for the collection. Many of the rich were making large contributions. One poor widow came up and put in two small coins—a measly two cents. Jesus called his disciples over and said, “The truth is that this poor widow gave more to the collection than all the others put together. All the others gave what they’ll never miss; she gave extravagantly what she couldn’t afford—she gave her all.”
Freely – Proverbs 11:24 One person gives freely, yet gains even more; another withholds unduly, but comes to poverty.
Honorably – Psalms 112:9 They give freely to the poor. The things they do are right and will continue forever. They will be given great honor.
Joyfully – 2 Corinthians 8:2 They are being tested by many troubles, and they are very poor. But they are also filled with abundant joy, which has overflowed in rich generosity.
Proportionately – Deuteronomy 16:17 All must give as they are able, according to the blessings given to them by the Lord your God.
Regularly – 1 Corinthians 16:2 On the first day of each week, you should each put aside a portion of the money you have earned. Don’t wait until I get there and then try to collect it all at once.
Reverently – Matthew 2:11 On coming to the house, they saw the child with his mother Mary, and they bowed down and worshiped him. Then they opened their treasures and presented him with gifts of gold, frankincense and myrrh.
Secretly – Matthew 6:3-4 But when you give to someone in need, don’t let your left hand know what your right hand is doing. Give your gifts in private, and your Father, who sees everything, will reward you.
Willingly – 2 Corinthians 8:12 If a man is ready and willing to give, he should give of what he has, not of what he does not have.
Eternally – Matthew 6:19-20 Do not store up for yourselves treasures on earth, where moth and rust destroy, and where thieves break in and steal. But store up for yourselves treasures in heaven, where neither moth nor rust destroys, and where thieves do not break in or steal.
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.
A decade ago, Franconia Mennonite Conference leadership noticed a critical problem: seminary-trained leaders were increasingly in short supply. So when Delaware Valley Mennonite Economic Development Associates (MEDA), a conference-related ministry, turned over a well-funded college tuition scholarship program to the conference, a solution soon emerged.
Conrad Martin and Donella Clemens of Franconia Conference partnered with Henry Rosenberger and Dave Landis of MEDA to form a committee charged with developing a plan for the use of the newly-received asset. According to Rosenberger, it became quickly apparent that continuing to use the fund for its previous purpose of providing small college tuition scholarships was becoming less meaningful in light of the meteoric rise of college costs.
“At the same time in our Conference history, there seemed to be an increasing number of pastors being called to congregations with little or no Anabaptist training or cultural knowledge of Mennonites,” said Rosenberger. “Concern for the effects this lack of training had in our congregations, I believe, prompted the Board of MEDA to see this fund as a way to enhance the training for persons moving into leadership.”
As a result, the Area Conference Leadership Fund (ACLF) was born. Future leaders from both the Franconia and Eastern District conferences now had a new financial option to help address the costs of seminary and higher education. The committee chose to accept ACLF applications from members in both the Franconia and Eastern District conferences to recognize the involvement of the two conferences in Delaware Valley MEDA.
In 2002, the first scholarships were disbursed and over the past decade, 60 leaders have received financial assistance from the fund. Soon, scholarship recipients began to reflect emerging shifts in the leadership demographics of Franconia Conference: twenty percent of recipients were people of color and one-third of recipients were women. The ACLF allowed Franconia Conference to invest in the future.
As Franconia Conference’s director of communication and leadership cultivation, Stephen Kriss immediately recognized the value of ACLF. “The amazing thing is how many people ACLF assisted who are serving the church both within and beyond Franconia and Eastern District conferences. These gifts were amazing investments in current and future leadership. ACLF enabled us to call forth, train, and equip dozens of leaders effectively, generously, open-handedly,” said Kriss.
Recipients of ACLF scholarships appreciate the confidence and support of the broader church community. For Angela Moyer, a member of the pastoral team of Ripple congregation, (Allentown, Pa.), the support of ACLF provided the freedom to explore seminary at a comfortable pace. “I never thought I would go to seminary. I started by just taking two classes at a time—I just had a few questions… I had no interest in pursuing a graduate degree. Little did I know how formative seminary would be in finding my identity as a pastor. Receiving funds from the ACLF was the broader church community nudging me, telling me it was okay to pursue this call even when I didn’t believe it myself.”
As the Lead Pastor of Salford congregation (Harleysville, Pa.), Joe Hackman believes that his leadership abilities have been significantly nurtured by the ACLF scholarship. “The ACLF fund allowed me to feel the support of the wider church community. The financial investment the church made for my education has helped me enter into my current leadership role with a greater sense of preparedness and confidence.”
In the words of Rosenberger, a core aspect of the original ACLF vision is to ensure that emerging “leadership was firmly based in Anabaptist theology and nonresistance.” This vision is coming to fruition in the work of Beny Krisbianto, Lead Pastor of Nations Worship Center (Philadelphia). “ACLF is helping me to finish my Capstone Project at Eastern Mennonite Seminary. My capstone project has taught me how to believe that ‘The Culture of Peace’ is still possible,” says Krisbianto. “Inspired by the struggles, prejudices, and broken relationships in my context of ministry in Philadelphia, peace is not theory, too big or unrealistic, but it is God’s calling and it does still work today.”
Despite occasional contributions, the size of the ACLF scholarship was considerably reduced in 2012 and leaders will no longer have access to substantial ACLF scholarships. This, however, does not mean that there is no longer a need for talented future church leaders. According to the Conrad Martin, Franconia Conference’s director of finance, the need for future church leaders is still there, as is the need to assist them financially so that they can pursue a quality Anabaptist education. Contributions into the ACLF continue to be welcomed.
Due to continued reductions in congregational giving, Franconia Conference has made a number of staffing adjustments, most effective February 1, according to Executive Minister Ertell Whigham. These adjustments are in response to a call by the conference board in May of 2012 to reduce staff FTE (full-time equivalency), stewarding both financial and human resources while better aligning personnel with conference priorities. Over the course of 2013, Conference staff will be reduced from 8.5 to approximately 7.5, a total reduction of about 12%.
“We were blessed to enter this year debt-free, but paying off the mortgage on the Souderton Shopping Center did not change the economic realities we’re facing, including a pattern of decreased giving from conference churches,” Whigham said. “While it will be challenging to provide ministry support with a more limited staff, we will continue to make every effort to meet the needs of our congregations and leaders.”
Both Noah Kolb, director of ministerial leadership, and Conrad Martin, director of finance, will reduce their percentage of time employed through the Conference. Martin will reduce to three-quarters time and Kolb, who began transitioning from a full-time role last year to move toward semi-retirement, will reduce further to half-time. Some of Kolb’s responsibilities will shift to other LEADership ministers including Jenifer Eriksen Morales, who will increase her load to fulltime.
Franconia will partner with Eastern District Conference to increase Carla Ferrier, administrative assistant, from three days a week to fulltime. In addition to the new administrative work for Eastern District, Ferrier will also take over some basic bookkeeping and move into an office manager role.
Sandy Landes, conference prayer coordinator, will step down on February 28 from her conference position to focus on ministry in the Doylestown congregation, where she has been on staff for eight years. “Sandy has brought a contagious and enthusiastic spirit and perspective to prayer ministry that has helped raise prayer awareness and especially intercessory prayer ministry to another level of importance in Franconia Conference,” reflected Franconia’s minister for spiritual transformation Noel Santiago, who has worked closely with Landes since she came on staff in 2007. “Sandy has been invaluable in keeping prayer at the center of Conference work and life. While she will be greatly missed on staff, we are grateful that she will continue in ministry through her local congregation.”
The prayer coordinator position, which was entirely grant-supported, will be discontinued and Santiago will oversee future conference prayer ministry.
Samantha Lioi, who was contracted last year by Franconia and Eastern District conferences as Minister of Peace and Justice, has extended her contract for another two years. Her position is supported by grants—congregations or individuals interested in supporting her work can contact conference Executive Minister Ertell Whigham.
In addition to its paid staff, Franconia Conference also benefits from the wisdom and guidance of volunteer LEADership Ministers. Randy Heacock, lead pastor of Doylestown congregation, has joined the conference’s volunteer staff and is now serving as the LEADership Minister for Wellspring Church of Skippack. Ray Yoder, who has served as one of Franconia’s volunteer LEADership Ministers for several years, will be retiring this spring.
“We’ve appreciated Ray and his work with congregations,” said Whigham, “but more importantly, he’s had a pastoral presence on our team and a level of wisdom and maturity that we all have benefitted from during his time on staff.”
Whigham also anticipates possible additional shifts in job responsibilities in the coming months to further align staff strengths and resources with conference priorities.
“As a board, we recognize the importance, reach, and depth of the work of Conference staff as we strive together to fulfill God’s vision of proclaiming Christ,” said Marta Castillo, assistant moderator, Nueva Vida Norristown New Life congregation. “We thank our staff for their passion, flexibility, and commitment to lead in equipping leaders and congregations to be missional, formational, and intercultural Anabaptist communities of faith through the power of the Holy Spirit.”
Franconia Conference is entering the new year debt-free after receiving payment for the sale of the Indian Creek Road Farm’s development rights late last week. The proceeds of the sale were used to pay off around 90% of the mortgage on the Souderton (Pa.) Center on December 27, 2012, according to the conference’s director of finance, Conrad Martin. The remainder of the mortgage was paid using funds from the center’s Capital Improvement Fund.
This marks the fulfillment of a process set in motion in 2007 by the Vision and Finance Plan Team formed by the Franconia Conference Board to align the conference’s resources to the call for contextual and contemporary ministry. The VFP team recommended in 2009 that the conference sell the development rights for the farm (near Harleysville, Pa.) and use the proceeds to pay off the Souderton Center’s ten-year-old mortgage. With the mortgage paid off, this will free over $13,000 per month to replenish the improvement fund and support conference ministry.
The conference is positioned to start 2013 on solid financial footing, said Conference executive minister, Ertell Whigham. “Along with anticipated increased giving from our congregations, this will enable us to invest more financial resources into ministry,” Whigham reflected. “We are grateful for those who had a vision for how the Souderton Center could bless the conference. What a way to start a year and celebrate God’s ongoing provision!”
Selling the development rights to the farm acreage means that the land cannot be further developed and will likely remain in agricultural use. The Vision and Finance Plan also recommended that the Indian Creek Road Farm be leased to an organization that would use the land to develop sustainable creation-care oriented ministries that recognize the nature of the preserved open space. As a result, the property was leased in 2010 to Living Hope Farm, a non-profit sustainable agricultural CSA (Community Supported Agriculture) farm led by Jill Landes of Blooming Glen congregation. Franconia Conference and Living Hope Farm are currently in conversations about beginning a Conference Related Ministry relationship.
In addition to property proposals, the VFP included recommendations about increasing continuing education expectations for credentialed leaders, creating grants for missional experiments, downsizing and relocating office space, and stabilizing the conference’s annual operating budget. The repayment of the mortgage was the final step in fulfilling the VFP’s recommendations. In early 2012, the conference board and staff acknowledged the fulfillment of the Vision and Financial Plan and moved toward a new set of working priorities (described in detail here). “We are pleased that the mortgage on the Souderton Center is paid off and that Franconia Conference is now debt-free,” said John Goshow, the board chair. “This will allow us to focus even more intently on growing God’s Kingdom.”
The 2011-12 fiscal year is almost over. Congregational giving continues to be behind expectations so far this year, by $34,000. Expenses have come back to expectations, running $2,850 below budget at this point in the year. We are currently in the time of year (December and January) when congregations usually make up for giving shortfalls, so we are praying for this to continue. 26% of congregational giving usually comes in these last two months.
A sampling of the various activities of the conference during the months of October & November:
$1,200 in Missional Operations Grants (MOG) was disbursed for youth ministry to Nueva Vida Norristown New Life.
The annual Conference Assembly meetings occupied of lot of staff time these past two months. Developing worship themes, partnering with Eastern District, contacting the guest speakers, translating into four languages, organizing the Prayer Room, coordinating video recordings, and so on, took a lot of energy; for both the assembly scattered meetings and the main meetings at Penn View Christian School.
Sandy Landes continues to lead a weekly prayer gathering at the conference center, but also led a day of prayer and fasting and a teaching on prayer.
Conference leaders attended the Constituency Leadership Council in October, a meeting of the “elders of the denomination”, who spent this time reflecting on the convention in Pittsburgh and church-wide communication.
The conference relies on contributions from congregations for approx. 60% of its operating budget. 27% of the revenue comes from conference-owned property subsidies, and 4% from conference related ministries. The other 9% comes from a variety of sources.
The 2011-12 fiscal year is two-thirds over. Congregational giving has fallen behind expectations these past two months by $16,500. Expenses have exceeded the budget by $7,500 at this point in the year. This is the time of year when we typically would see the conference fall behind on its net income, but we’re a little more behind than expected.
A sampling of the various activities of the conference during the months of August & September:
$10,050 in Missional Operations Grants (MOG) was disbursed during this period. Two congregations received grants for leadership development (Georgia Praise Center and Oxford Circle Mennonite). Two other congregations received grants for outreach ministries (Greensburg Worship Center and Nations Worship Center). To apply for a MOG, see your LEADership Minister.
$15,393 in Area Conference Leadership Fund scholarships were disbursed during this period for 8 current and future ministry leaders.
Franconia Conference hosted the “In The City For Good” church planters conference in Allentown, in cooperation with Mennonite conferences from Virginia to Ontario. About 80 persons from nearly a dozen ethnic and language groups attended.
Franconia Conference launched a new website, which we hope will be more user-friendly. We have also started live video-streaming Pastors and Leaders Breakfasts and other conference events. If you have not been able to attend these events, look for them online.
Noel Santiago led a seminar “Transforming Our Region: Church and Marketplace Partnerships” for local pastors and business leaders.
LEADership Ministers logged over 19,000 miles on the road so far this year, mostly in meetings with their assigned congregations and leaders.
Where do funds for Missional Operations Grants (MOG) come from? Estate gifts are put into the Ministry Resource Fund, held with Mennonite Foundation. Twenty percent of this fund is used annually for MOGs. Please keep MOGs in mind when you are doing your estate planning.
Mostly due to congregational contributions, revenue has moved ahead of budget $12,000 over the last two months. Thanks for your faithful and generous congregational giving! Expenses have exceeded the budget by approximately $2,000.
A sampling of the various activities of the conference during the months of June & July:
• $20,000 in Missional Operations Grants was disbursed. Deep Run East,Whitehall, Ripple Allentown and Rock received grants for leadership development. Nueva Vida Norristown New Life and Souderton received grants for outreach ministries. Good Shepherd received a grant for their work with new Spanish-speaking congregations inMaryland.
• Conference staff and board members attended the Mennonite Church USA bi-annual convention.
• Staff have started preparing for the Conference Assembly in November: worship planning sessions, scheduling speakers, writing committee reports, arranging for exhibits, childcare and translation.
• By the end of this year the Area Conference Leadership Funds will be depleted. Fifty-four persons, so far, have received scholarships in the last ten years. Developing new church leaders and assisting those currently in church leadership is important for the future of the conference.
• In previous years, Franconia Conference has been able to assist congregations to send delegates to the bi-annual MCUSA convention. This year, due to a shortage of funds, we were not able to do this.
These are just two of many opportunities that will be missed in future years, without your assistance.