1099 vs. W-2? Housing vs. Salary vs. Love Offerings?

by Steve Fredlund
(North Branch, MN, USA)

Question regarding pastoral support:

I've read through a ton of your posts and first want to say thank you and the other participants. I am helping a gentlemen start a small church and could use your help.

I have a general understanding of things, but still struggling with the best approach given our situation. Here are the key elements:

  • He is planning to get support from people/organization outside of the church community, much like a missionary might raise support, rather than being paid out of the general fund.

  • Some/most of the donors would like to receive a tax deduction on their support of him so are a bit reluctant to write him checks directly; they would like to go through the church to be able to get the deduction.

  • He & his family make a very modest income and will be receiving very modest support, so it is likely that their income taxes due for the year will be very minimal or nothing. Further, the support in total would likely be less than that threshold for pastoral housing allowance.

  • We would also like to avoid the complexities and/or cost of dealing with payroll taxes, filings, etc.

  • We would like to consider incorporating regular love offerings into the formula for supporting his family.

So, my thought is that we would allow all contributions (support, love offerings) to flow through the church as tax deductible and then give him a check which would be taxable income.

Is it that simple? Then, would the income we report to him be done through a W-2 (with no withholdings) or a 1099-MISC or some other mechanism. Bear in mind, we want to make this as simple as possible to start. My apologies for the length of this, but want to be thorough to hopefully get an answer that brings clarity.

Thanks so much!!!!

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Comments for 1099 vs. W-2? Housing vs. Salary vs. Love Offerings?

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Not Charitable Donations
by: Vickey

Regarding the first part of your question, gifts to an individual do not qualify as charitable donations. Also, a church cannot serve as a “conduit” for “earmarked” gifts.

To quote Dan Busby, CPA, from his book: Zondervan 2010 Church and Nonprofit Tax and Financial Guide
“To be deductible, the charity must have discretion and control over the contribution without any obligation to benefit a designated individual.”

As far as if you would give him a W-2 or 1099-MISC that would depend on whether (by state and federal labor laws) he was considered an employee of the church or not.

Remember, if you determine he is an employee of the church, he is considered to have a dual tax status with the IRS and will require the church to handle his taxes accordingly.

See this page for more information on handling clergy taxes.

You could incorporate regular love offerings as long as he knows the offerings would definitely be taxable income for him as it would be considered payment for a service and would not be spontaneous.

I agree with Marcus. I think it would be wise to consult a tax professional regarding his situation with the type of support he is expecting to receive.

Consider Incorporating
by: Marcus in Texas

A very interesting and thought-provoking question and wish I had more time to comment, but don't at this point; however, as a first step the person in question may want to consider personally incorporating, but should consult with a tax attorney or CPA who specializes in tax issues. Whatever he receives as income would be taxable income.

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