As a result of the info in "Salary at Bethel" by JT (post #3871 dated 20 Dec'03), I contacted the IRS to see what the regulations are regarding the impact on Social Security and income taxes when a person gets a very small salary with compensation in the way of room and board. The following answer seems very complicated and convaluted. However I am interested in any comments you all have on the subject.A question I have is "Are all of the people in Patterson and Bethel ordained ministers of the WTBS? Is the manipulation of the salary figures legal?
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Your Question Was:
What are the conditions where an employer can pay an employee a lower salary and provide benefits that include room and board as part of employment agreement and result in the employer to not be obliged to collect taxes because the salary is too low to be taxed? Can a religious organization do this?
The Answer To Your Question Is:
Thank you for using our e-mail service. We apologize for the delay in responding to your inquiry. Your statement 'can a religious organization do this' is prompting me to respond to this question from a clergy point of view and yes they can.
Special rules for housing apply to members of the clergy. Under these rules, you do not include in your income the rental value of a home (including utilities) or a designated housing allowance provided to you as part of your pay. However, the exclusion cannot be more than the reasonable pay for your service. The home or allowance must be provided as compensation for your services as an ordained, licensed, or commissioned minister. However, you must include the rental value of the home or the housing allowance as earnings from self-employment on Schedule SE (Form 1040) if you are subject to the self-employment tax. For more information, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers.
The services you perform in the exercise of your ministry are covered by social security and Medicare under SECA. Your earnings for these services are subject to self-employment tax (SE tax) unless one of the following applies.
You are a member of a religious order who has taken a vow of poverty.
You ask the Internal Revenue Service (IRS) for an exemption from SE tax for your services and the IRS approves your request. See Exemption From Self-Employment (SE) Tax, later.
You are subject only to the social security laws of a foreign country under the provisions of a social security agreement between the United States and that country. For more information, see Binational Social Security (Totalization) Agreements in Publication 54.
Your earnings that are not from the exercise of your ministry may be subject to social security tax under FICA or SECA according to the rules that apply to taxpayers in general. See Qualified Services, later.
If you are a minister of a church, your earnings for the services you perform in your capacity as a minister are subject to SE tax unless you have requested and received an exemption. See Exemption From Self-Employment (SE) Tax, later. These earnings are subject to SE tax whether you are an employee of your church or a self-employed person under the common law rules. For the specific services covered, see Qualified Services, later.
Ministers are individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination. They are given the authority to conduct religious worship, perform sacerdotal functions, and administer ordinances or sacraments according to the prescribed tenets and practices of that church or denomination.
If a church or denomination ordains some ministers and licenses or commissions others, anyone licensed or commissioned must be able to perform substantially all the religious functions of an ordained minister to be treated as a minister for social security purposes.
Employment Status for Other Tax Purposes
Even though you are considered a self-employed individual in performing your ministerial services for social security tax purposes, you may be considered an employee for income tax or retirement plan purposes. For income tax or retirement plan purposes, some of your income may be considered self-employment income and other income may be considered wages.
Common-law employee. Under common law rules, you are considered either an employee or a self-employed person depending on all the facts and circumstances. Generally, you are an employee if your employer has the legal right to control both what you do and how you do it, even if you have considerable discretion and freedom of action. For more information about the common-law rules, get Publication 15-A, Employer's Supplemental Tax Guide.
If you are employed by a congregation for a salary, you are generally a common-law employee and income from the exercise of your ministry is considered wages for income tax purposes. However, amounts received directly from members of the congregation, such as fees for performing marriages, baptisms, or other personal services, are considered self-employment income.
Example. A church hires and pays you a salary to perform ministerial services subject to its control. Under the common-law rules, you are an employee of the church while performing those services.
Form SS-8. If you are not certain whether you are an employee or a self-employed person, you can get a determination from the IRS by filing Form SS-8.
If you are a member of a religious order who has not taken a vow of poverty, your earnings for qualified services you performed as a member of the order are subject to SE tax. See Qualified Services, later. This does not apply if you have requested and received an exemption as discussed under Exemption From Self-Employment (SE) Tax, later.
Vow of poverty. If you are a member of a religious order who has taken a vow of poverty, you are exempt from paying SE tax on your earnings for qualified services (defined later) you perform as an agent of your church or its agencies. For income tax purposes, the earnings are tax free to you. Your earnings are considered the income of the religious order.
Services covered under FICA at the election of the order. Even if you have taken a vow of poverty, the services you perform for your church or its agencies may be covered under social security. Your services are covered if your order, or an autonomous subdivision of the order, elects social security coverage for its current and future vow-of-poverty members.
The order or subdivision elects coverage by filing Form SS-16. It can elect coverage for certain vow-of-poverty members for a retroactive period of up to 20 calendar quarters before the quarter in which it files the certificate. If the election is made, the order or subdivision pays both the employer's and employee's share of the tax. You do not pay.
Services performed outside the order. Even if you are a member of a religious order who has taken a vow of poverty and are required to turn over to the order amounts you earn, your earnings are subject to federal income tax withholding and employment (FICA) tax if you:
Work for an organization outside your religious community, and
Perform work that is not required by, or done on behalf of, the order.
In this case, you are considered an employee of that outside organization. You may, however, be able to take a charitable deduction for the amount you turn over to the order. See Publication 526, Charitable Contributions.
Lay employees. Lay employees generally are covered by social security. However, see Election To Exclude Church Employees From FICA Coverage, later, under Religious Workers.
Rulings. Organizations and individuals may request rulings from the IRS on whether they are religious orders, or members of a religious order, respectively, for FICA tax, SE tax, and federal income tax withholding purposes. To request a ruling, follow the procedures in Revenue Procedure 2002-1, which is published in Internal Revenue Bulletin 2002-1.
You can read this Revenue Procedure at most IRS offices or, if you have a personal computer, visit the IRS on the Internet at www.irs.gov/ind_info/bullet.html.
To subscribe to the Bulletin, you can order it on the Internet at http://bookstore.gpo.
gov/irs. You also can write to:
Superintendent of Documents
P.O. Box 371954
Pittsburgh, PA 15250-7954.
Now,whether your salary is to low to be taxed depend on whether you have a filing requirement. If you are a U.S. citizen or resident, whether you must file a return depends on three factors:
Your gross income,
Your filing status, and
To find out whether you must file, see Table 1-1, Table 1-2, and Table 1-3. Even if no table shows that you must file, you may need to file to get money back. (See Who Should File, later.) ref Pub 17.
Gross income. This includes all income you receive in the form of money, goods, property, and services that is not exempt from tax. It also includes income from sources outside the United States (even if you may exclude all or part of it). Common types of income are discussed in Part Two of this publication. ref Pub 517 & 17.
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which is available 24 hours a day, 7 days a week, with 7-10 days delivery time.
Other useful toll-free numbers include:
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