September 2019 - The Pastor's Wallet

How Can You Benefit From The 2017 Equifax Data Breach Settlement?

by Amy Monday, September 30, 2019

Do you remember back in 2017 when credit reporting agency Equifax had a data breach that compromised the personal information of over 147 million Americans? Yes, an organization that collects our Social Security numbers and our financial information without our consent got hacked and lost half of America’s information. Here is an article from when it happened if you want to read more about it.

As you may suppose, people weren’t very happy about it. A lot of people never even realized that Equifax had their information, much less lost it.

Well, Equifax has been in discussions with the Federal Trade Commission, the Consumer Financial Protection Bureau, and 50 U.S. states and territories, and they’ve finally come up with a settlement. Two years later and they’ve finally figured it out. Now that they’ve come to an agreement, it’s your turn to act.

Was Your Data Compromised?

The first thing you need to do is determine if your personal information was compromised. You can do that here.

When the breach first occurred, I used their website to see if I was affected and the results were negative. I think they’ve refined it a bit to make it more accurate, though, because now it says that I was affected. So, even if you checked before, you should check again. You can also check on behalf of your minor children and file claims for them if necessary.

If your information was not leaked, then the rest of this article is irrelevant for you and you can move on with your day. However, you may want to share it with your friends and loved ones in case they were affected.

What Compensation Do You Want?

If your data was compromised, you have several opportunities for compensation. These are your options:

Free Credit Monitoring – They will provide at least 4 years of free credit monitoring with all three credit bureaus, offered through Experian. They will also provide up to 6 more years of credit monitoring with only one bureau, provided by Equifax.

Cash Payment – For those that already have credit monitoring services that will continue for at least 6 more months, you can choose to receive a cash payment instead. The maximum payment is $125 and the amount will depend on how many claims are filed, so it could be a lot less.

In addition, if you have invested time and money into remedying fraud, identity theft, or other misuse of your personal information caused by the data breach, or purchasing credit monitoring or freezing credit reports because of it, you could be reimbursed up to $20,000. Time is valued at $25 an hour and you will need documentation to prove your claim.

How Do You File A Claim?

Speaking of claims, you have to file one by January 22, 2020, in order to receive any of the above. You can file a claim here. The process is pretty straight forward, but I’ll walk you through it anyway.

After clicking that link, it will take you to a page with a big FILE A CLAIM ONLINE button and also instructions for filing a hard-copy claim or for a minor.

Click the button and it will take you to an instruction page. Once you click Next, you will get a page that looks like this to fill out your personal information:

Clicking Next will take you to the page where you choose either credit monitoring or cash. If you choose cash, you will be asked to give them the name of your current credit monitoring agency.

The next page, Section 2, is where you can get reimbursed for your time:

Next, Section 3 gives you the option to file a claim for lost or spent money related to the data breach.

If you requested a cash payment, Section 4 asks how you would like to receive it.

Finally, you will be given a claim summary where you can double check the information you gave, agree to some disclosures, and sign electronically.

And then you’re done! It’s that simple.

Remember, all claims must be filed by January 22, 2020.

What If I Want To Sue?

If you file a claim as detailed above, you will waive your right to sue Equifax. In fact, even if you do nothing, you will still waive your right to sue Equifax. The only way to keep your right to pursue legal action against them is by mailing in a written “Request for Exclusion.”

To keep the door to legal action open, you have to act soon. Your “Request for Exclusion” must be postmarked by November 19, 2019, for it to count. If you haven’t done anything by November 20, then you’re out of luck and cannot take legal action against Equifax related to the data breach. You can read more about this option here.

If you have any questions beyond what is provided here, visit https://www.equifaxbreachsettlement.com/.

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Get Your Free Downloadable 2019 Minister Housing Allowance Worksheet

by Amy Monday, September 23, 2019

Picture of a 2019 minister housing allowance worksheet with blog post title: Get Your Free Downloadable 2019 Minister Housing Allowance Worksheet

As we enter the final stretch of 2019, it’s time to review the year’s housing expenses and how they align with your designated housing allowance. It’s always a good idea to review your housing allowance about this time of year to make sure you are maximizing your tax savings. How well your actual expenses have lined up with your designated allowance will affect what you do the remainder of the year.

Free Minister Housing Allowance Calculator & Worksheets

I’ve created several tools that will help you as you review your housing allowance:

Online Calculator

Online Housing Allowance Calculator

Our Pastor’s Wallet online calculator can be used to both anticipate expenses for the coming year and review the past year’s expenses. Make sure that you are entering expenses on an annual basis by multiplying monthly expenses by the number of months they have or will cover.

Downloadable .PDF Document

2019 Minister Housing Allowance Worksheet Download

If you just want a real piece of paper to write on, click the download button above and print out the document. It includes spaces for the most common housing expenses and several open spaces for your own unique expenses.

Downloadable Excel Spreadsheet

2019 Minister Housing Allowance Excel Worksheet Download

For Excel users who want to personalize their calculations or save them for the future, click the above link to download a .xlsx document. It’s set up to automatically add up your housing expenses as you plug them in.

Minister Housing Allowance Limitations

It’s important to remember that just because you spent a certain amount on housing expenses for the year, that doesn’t automatically qualify them for the clergy housing allowance. The IRS has placed limits on how much can be claimed.

You may only claim the lesser of:

the amount actually used to provide or rent a home;

the fair market rental value of the home (including furnishings, utilities, garage, etc.);

the amount officially designated (in advance of payment) as a housing allowance; or

an amount which represents reasonable pay for your services.

To learn more about calculating the fair market rental value of your home, go here.

What To Do If Your Housing Allowance Is Off

If you’ve been spending more than expected and don’t have a lot of designated allowance left for the remainder of the year, you may want to put off purchases and projects. Anything you spend above what was previously designated for the year will come out of your taxable income and you will receive no tax benefits. It may be worthwhile to postpone fixing your deck or buying that new oven until January and request a higher allowance for 2020 to cover it.

What if you haven’t spent as much as you expected? If your housing allowance exceeds your expenses for the year, now might be a good time to tackle your list of house projects. Paint that bathroom you’ve been eyeing, do that landscaping project you’ve been considering or finally buy your wife that new down comforter she’s had her heart set on. Your tax-exempt allowance has already been designated, so you might as well make the most of it.

If you still haven’t spent your entire designated amount by the end of the year, you will need to add it back into your taxable income when you file your tax return in the spring. Luckily, that’s not nearly as intimidating as it sounds. This article details step by step just how to do it.

I hope you find these resources helpful. If you have any questions, ask in the comments or send me an email!

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3 Lies You Believe That Keep You From Providing For Your Family

by Amy Monday, September 16, 2019

I had a Bible college professor that was very entertaining and could make an entire class laugh with his facial expressions alone. One phrase he would commonly use, while his eyes bulged out huge and round, was, “That’s a lie from the pit of hell!”

While it would always make us laugh, lies are really serious business. Lies are always designed to hold us back from something that is good for us or lead us away from that which is right. Today I want to address three lies that do just that.

These are lies about estate planning. What is estate planning, you may ask? Basically, it is arranging for the smoothest and least painful transition when you die. And it refers more to the business side of life, not the physical or spiritual side.

We all know that the best estate planning is having a relationship with Jesus. But what about things like the titling of your car or bank accounts or who is going to take over responsibility for your kids? That’s the kind of estate planning we’re discussing today. Lots of paperwork.

Lie #1: Estate Planning Is Too Expensive

Many people don’t have wills or other estate planning documents because they think it’s too expensive. The reasoning goes like this: A will is a legal document, so you need a lawyer to do it. Lawyers are expensive. I’m not rich, so I can’t afford it.

If you believe this lie, let me ask you: have you ever priced out wills in your area? I mean, have you contacted any law firms to find out the real cost? Prices vary based on the complexity of your needs and the area where you live and can range from several hundred dollars to several thousand dollars. You never know until you ask, and a good estate planning attorney may be able to set things up so that you’ll save more in taxes and fees when you pass away than the estate planning even costs. Usually, they are more than worth the expense.

If you cannot afford that, that’s still not a good enough excuse to do nothing. There are cheaper ways to do it. My first will cost $20. You can get basic estate planning documents online through companies like Legal Zoom, US Legal Forms, Legacy Writer, etc. Just Google it.

Companies like this offer basic, state-specific documents that, while not as good as those drawn up by a competent attorney, are better than nothing. Because if you have nothing, then the state decides where your money goes and, more importantly, who raises your children. And you leave open the possibility of legal battles regarding whether or not to pull the plug, a la Terri Schiavo.

Lie #2: Estate Planning Is Only For Rich People

Many people believe that estate planning is only for rich people. This is based on truth because estate planning is really important for rich people if they want their wealth to actually go to their heirs. When Elvis Presley died, only 27% of his estate went to his heirs. The rest went to taxes, legal fees, and other costs. So, yeah, estate planning is really important for rich people.

It’s also important for people without any money, too, though. You see, estate planning isn’t just about money. Especially if you have minor children. To me, the most important part of my estate plan is where I designate who will raise my children if my husband and I pass away. My money isn’t really all that important, buy my children have eternal souls that will be shaped and formed by whoever raises them. That matters a lot to me.

Also, estate planning documents should include a living will or advanced directive. This states what kind of life-sustaining measures you want to be employed on your behalf. Do you want your body kept alive for decades on a ventilator if you’re brain dead? You only get to make that decision if you take the time to write it down as a part of your estate planning.

Lie #3: I Can Do It Later

I am writing this article on September 12, 2019. Yesterday was the 18th anniversary of the most brutal terrorist attack in our nation’s history. That morning, thousands of people went to work thinking it was just another day and never came home. It serves as a good reminder that we never know when our time will come. I have known too many people who have died young and unexpectedly to take tomorrow for granted.

Many people think that they are invincible when they are young and don’t need to worry about estate planning until retirement. That’s simply not the case. We will all die and none of us know when. So, you might as well prepare for it so as not to leave your family with a big mess on their hands.

Death is a hard topic for many people to discuss. Facing mortality is difficult, even for those that know they will go somewhere infinitely better when they die. But, if you care about those that you will leave behind, you should do some estate planning and get all of your documents in order. Take a look at this estate planning checklist for pastors to make sure your family is set up for the smoothest possible transition during their most difficult time. You won’t regret it.

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How To Make Quarterly Estimated Tax Payments For Ministers

by Amy Monday, September 9, 2019

As we’ve discussed previously, churches are not required to withhold taxes for pastors and other clergy. Because of a minister’s dual taxation status, the IRS expects them to pay as if they were self-employed.

How do self-employed people pay taxes?

Through quarterly estimated tax payments. So, as a pastor, you’re required to make quarterly estimated tax payments.

What Are Quarterly Estimated Tax Payments?

Our American tax system is a pay-as-you-go system. Many people don’t realize this because they think they only pay once a year- on April 15. However, most employees are paying all year long, out of every paycheck. The yearly tax return they file is just to check their balance for over- or under-payments.

The IRS doesn’t want to wait a year to get their money. They want it immediately, which is why most employees are subject to mandatory tax withholding. Self-employed people, though, don’t have an employer to withhold their taxes for them. And many of them do not pay themselves a regular paycheck from which taxes could be withheld. Therefore, the IRS set up the quarterly estimated tax payment system.

Self-employed people (or those treated as if self-employed, like clergy) are required to pay taxes four times a year with IRS Form 1040-ES. These payments include federal income tax and SECA taxes, which are the Social Security and Medicare taxes.

When Are Quarterly Estimated Tax Payments Due?

While quarterly payments are due four times a year, the year is not divided up equally. This is when each payment is due and what each payment covers:

If the due date falls on a weekend or holiday, it gets pushed back to the next business day. For example, this September 15 is a Sunday, so the payment is due the next day, Monday, September 16, 2019.

How Should Pastors Calculate Quarterly Estimated Tax Payments?

IRS Form 1040-ES includes a worksheet for calculating estimated payments. However, it gets complicated. Use that if you want something comprehensive and exact. Otherwise, I will explain the basics of calculating your estimated payments.

Calculating Estimated Income Tax Payments

I’ll start by addressing income taxes, because that applies to all pastors, whether or not you’ve opted out of Social Security. If you’ve opted out, this is all you have to worry about. If not, you need to read the next section as well.

The basic way to figure estimated taxes is to take your expected salary and subtract expected deductions (standard or itemized, plus half of SECA taxes due) to find your expected taxable income.

Expected Salary – Expected Deductions = Expected Taxable Income

Then look up the tax on that expected taxable income in the 2019 tax rate schedules below (taken from IRS Form 1040-ES).

Picture of the IRS's 2019 Tax Rate Schedules

That is your expected annual tax. You can lower it by any tax credits you expect to receive, such as the child tax credit. Once you’ve accounted for credits, you can just divide it so that it represents the quarter you are paying. This month’s estimated payment covers 3 months (June, July, and August), so the equation would look like this:

Estimated Annual Tax (Less Expected Tax Credits) * 3/12 = Quarterly Tax Payment Due

If you have irregular income, you should look back at just the months in question. Take your income from those months, subtract the time period’s portion of your expected annual deduction (for example, 3/12 of the standard deduction), and use that amount to figure your tax for the quarter.

Remember that your housing allowance is exempt from federal income taxation, so it should not be included in these calculations!

Pastors Participating In Social Security

If you chose to remain in the Social Security system, then you have to pay SECA taxes on top of your income taxes. Remember that your housing allowance is not exempt from SECA taxes, so you will need to include it in your total income. If you live in a parsonage, you also have to include the fair market rental value of the parsonage in your total income.

If you earn under $132,900, then your SECA taxes are 15.3% of 92.35% of your income. For this September’s payment, you would calculate it as:

Income (including housing or parsonage allowance) * 0.9235 * 0.153 = Annual SECA Taxes

Annual SECA Taxes * 3/12 = SECA Taxes Due This Quarter

If your total income exceeds $132,900, then you SECA taxes are 15.3% of 92.35% income up to that amount plus 2.9% above that amount.

Your quarterly estimated tax payment is comprised of both your estimated income taxes due and SECA taxes.

How To Avoid Penalties

If you don’t pay your estimated taxes, you will be penalized by the IRS. You can also incur penalties if you underpay. Sometimes it can be hard to estimate taxes, so the IRS created “safe harbor” calculations. If you use these calculations you will not be penalized, even if you underpay. You should be safe from penalties if you:

Expect to owe less than $1,000
Pay 100% of your previous year’s tax liability if your adjusted gross income is under $150,000. If it is over that, you have to pay 110% of the previous year’s tax liability.
Pay within 90% of your actual tax liability for the year

Another Way To Do It

Making quarterly estimated tax payments can be a real pain. If you don’t want to have to deal with this, ask your church to withhold taxes for you. While they aren’t required to, they are allowed to. They can’t pay your SECA taxes for you, but they can withhold enough to cover your SECA taxes at the end of the year.

Another way to avoid paying quarterly estimated taxes is by having another employer withhold more. If you or your spouse is an employee of a secular company that withholds taxes, just have them withhold enough to cover your pastoral income. Changing your withholdings is as simple as filling out a Form W-4 and filing it with the company’s Human Resource department.

I hope this sets you up for success this September 16 and in the future. If you have further questions, ask me in the comments or email me!

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Are Gifts To Retired Ministers Taxable?

by Amy Monday, September 2, 2019

You’ve done it! You’ve fought the good fight, run the race with perseverance, and now the time has come to retire from your post. You did a good job and your church loves you. They want to bless you in this new season of life, so they write you a big check. While you’re thrilled and grateful, there’s one important question you need to answer before you start spending it: Do you have to pay taxes on your retirement gift?

Most Gifts To Pastors Are Taxable

Usually, gifts to pastors are considered taxable income. The IRS is pretty strict about that and tax court cases have been decided that lay out their criteria and reasoning. While your congregation might not realize it, pretty much anything they do for you that’s related to the fact that you’re their pastor constitutes taxable income for you.

A $50 thank-you after a baptism? Taxable income.

A cash birthday gift? Taxable income. (I guess the IRS doesn’t think they’d like you enough to give it to you if you weren’t their pastor.)

Gift certificate for a night at a hotel from the congregation for your anniversary? Taxable income.

A big check from a love offering at your retirement party? You might actually get to avoid taxes on that one!

When Gifts To Retired Pastors Are Tax-Free

Yes, it’s true. Certain gifts to retired ministers are not considered compensation and are therefore tax-free gifts. There are some strict criteria that must be met in order for a gift to avoid taxes, given by the IRS in Revenue Ruling 55-422.

For your retirement gift to be non-taxable, the following must be true:

You aren’t expected to perform any services in exchange for the gift.
The gift is not based on any enforceable agreement or past practice. The church is under no obligation to do it for you.
You will no longer be working for the church or rendering services in any formal capacity.
You had a deeper relationship than simply employee/employer with the church. The gift cannot be for just any employee but rather someone like a senior or executive pastor.
You must have received adequate compensation for your past services. The gift cannot be to make up for what the church wishes they could have paid you previously. How things are worded when the gift is presented can violate this requirement if not thought through carefully.

If even one of the above criteria does not apply, then the gift is considered compensation for services rendered and is thus taxable.

When planning for such a gift, it is important that the church asks, Could this in any way appear to be compensation for past, present, or future services? If the church cannot answer that question with a clear negative, then the IRS may not either.

When you’re unsure if a gift that your church has given you qualifies to be tax-free, discuss it with your church and find out the reasoning and logic behind the gift. If they cannot give you any definitive answers, then consult a tax professional that is experienced in clergy matters. (Beware, though, because most standard tax preparers do not know or understand all of the special tax considerations that you, as a pastor, face.)