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What Is Dual Status Taxation & Why Does It Matter For Pastors?

by Monday, March 11, 2019
Picture of a metal 2 on an orange background with blog post title: What Is Dual Status Taxation & Why Does It Matter For Pastors?

If you’re a pastor, hopefully you’ve been told that you are subject to dual status taxation. If not, I’m really glad you’ve found this post!

What Is Dual Status Taxation?

Dual status taxation simply means that you are taxed two different ways in the same tax year. My husband was subject to dual status taxation back in 2011 when he became a US citizen. For the first part of the year, he was taxed as a resident alien and the second part of the year he was taxed as a citizen. Dual status just means that he had two different statuses during the year.


My husband was only subject to dual status taxation for one year, but pastors aren’t so lucky. You are subject to permanent dual status taxation. That means that every single year you are going to be taxed in two different ways. It isn’t something you can avoid, it’s simply something that comes along with being a pastor.

Why Are Pastors Subject To Dual Status Taxation?

I wish I could tell you why pastors are always subject to dual status taxation. Unfortunately, as with many government policies and procedures, it’s hard to find the why behind it. Though I can’t tell you why things are the way they are, I can at least tell you how it all works.


For federal income tax purposes, pastors are considered common-law employees and taxed as employees. For Social Security and Medicare taxes, also called payroll taxes, pastors are taxed as if they were self-employed. Of course, if you’ve opted out of Social Security, you aren’t subject to these taxes at all. So, in review:


Federal Income Tax: Pastor = Employee

Social Security/Medicare Tax: Pastor = Self-Employed


What Does Dual Status Taxation Look Like For Pastors?

What does it mean to be taxed as an employee or as self-employed?


For your federal income taxes, you get Form W-2 from your church and you enter the wages they paid you on line 1 of Form 1040. Just like any other employee of a company would do. You don’t have to fill out Schedule C like self-employed people (unless you have income paid to you by someone other than the church, such as fees paid directly to you for performing weddings).


Even though you feel and act like an employee and you file Form 1040 like an employee, the IRS does not consider you one for your payroll taxes. Employees only have to pay 6.2% of their wages (on up to $132,900 of wages in 2019) for Social Security and 1.45% of their wages for Medicare (0.9% more when your wages exceed $200,000). That’s what employees pay and their employer matches it for a total of 15.3% of wages paid to the government.


As a pastor, the double portion falls on you. But you don’t want it the way Elisha did. You get to file as a self-employed person and pay BOTH the employee and employer portion of your payroll taxes.


Why? Boy, do I wish I knew! If you know, please tell me!


What I do know is that pastors have to pay the full 15.3% and it’s actually against the law for churches to try to pay payroll taxes for pastors. Strange, huh?


So, even though your Form 1040 looks like you’re an employee, you will have to fill out Schedule SE to pay your Social Security and Medicare taxes as a self-employed person. The only good thing is that half of those taxes are deductible. (You’ll have to file the new Schedule 1 in order to do so.)

How Does The Housing Allowance Fit In?

One thing that you need to be aware of in all of this is your clergy housing allowance. It, as well, is treated differently for the different taxes.


What the housing allowance is is an exemption from federal income taxation. That means you don’t have to pay taxes on that amount and it won’t appear on your form 1040. So, for federal income tax purposes, the housing allowance is tax-free free money.


Sadly, the housing allowance is not exempt from Social Security and Medicare taxation. On Schedule SE, where you calculate your self-employment taxes, you will have to add your housing allowance back into the wages shown on your W-2 to arrive at your total taxable income.


This doesn’t just apply to the cash or rental housing allowance, either. It applies to the parsonage allowance as well. Even though you never saw any actual money, the fair rental value of your church-provided home must be included in your income on Schedule SE.


So, you have to pay 15.3% of all of the cash you received, even if it was used for housing expenses. And, if you live in a parsonage, your bill will be even more than 15.3% of the cash that you have received since the value of your home is calculated as if you had received it in cash. In summary:


Federal Income Tax: Housing Allowance = Tax-Free

Social Security/Medicare Tax: Housing Allowance = Taxable


And that is what it means for pastors to be subject to dual status taxation. Click here for more articles that will help you file your taxes this year.

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The Female Pastor’s Wallet: Financial Tips For Single Women In Ministry

by Monday, March 4, 2019
Picture of woman overlooking city with blog post title: The Female Pastor’s Wallet: Financial Tips For Single Women In Ministry

In honor of International Women’s Day on March 8, here is a piece for single women in ministry. I know you are the minority, but you matter and you are some of my best friends!

Picture of Michal Slate from michalslate.com

Though geared towards women in ministry and their unique challenges, everyone can benefit from what guest writer Michal Slate has to say. A Certified Financial Planner™ with a master’s degree in business leadership from Colorado Christian University, she has more than 13 years experience working with individuals on a personal level to help them discover the best course of action for their finances. Michal is passionate about both Jesus and helping Christian women master their finances. You can learn more about her and what she does here.

What are your financial goals?

Are they funding the day-to-day work you do in the inner city or poverty-stricken countries? Or is your financial goal to run a mega ministry that partners with other ministries to bring in millions in donations to feed the hungry, clothe the naked and counsel the broken? Is your financial goal somewhere in between?

Is your goal or dream to make a difference big or small as a lover of Jesus? Do you desire to leave a mark on this world that isn’t your name but the name of Jesus Christ? I am so overjoyed to assist! Your calling to work as a shepherd is one that I respect and admire. I want to see you succeed in your finances and as a leader in your calling to serve our Lord and Savior.

I am excited to share with you some tips for personal financial management as a woman in leadership… wait, a Christian woman in leadership, or a Christian woman pastor, or a single Christian woman pastor…

No matter how specific we get in your role as pastor/leader/shepherd, we can absolutely learn to navigate the world of financial planning as it relates to you: The Christian Woman Leader. I am humbled to advise in this area.

Women Belong In Leadership

The call for women in leadership is ringing from the rooftops in every industry. I work in business and finance and I can see it everywhere.

Even in the church, God is raising up a generation of powerful female leaders. It can be especially challenging in the church, though. Many in the Christian community recite 1 Timothy 2:12 until they are blue in the face while ignoring Biblical figures such as Deborah, Priscilla, Lydia, and Mary of Magdalene. Where would the church of Corinth be if Priscilla had been afraid to teach Apollos?

I admire you for following God’s call on your life in spite of the challenges.

I know how it feels. Personally, I used to doubt myself because of some well-meaning people who made me feel less than qualified due to my age, gender, or lack of pedigree upbringing. But, with God’s help, I overcame that and here I am. I am one of only a few Christian women with 2 Master’s degrees, the prestigious Certified Financial Planner™ designation, and I’m also pursuing a doctoral degree. On top of that, I’ve got a pretty successful career as a financial advisor.

I am highly passionate about educating and empowering women, especially Christian women, in all things financial so that they know how to navigate the world we live in and won’t get taken advantage of. Thank God for the Holy Spirit and discernment that assists us when we don’t know which direction to go; however, practical insight from someone who knows this industry inside and out can be of great importance.

How We Learn Personal Finance

In an ideal world, we would begin our financial education as children, under our parents. As little girls, our parents would meet all of our needs and we would be oblivious to any financial stress. Getting older, a wise parent would show us how the bills are paid and how the job or business brings in financial resources so that the bills can get paid, vacations can be taken, and items can be purchased.

As a little girl you would be taught to divide your money into 3 jars: Spend, Save, and Give. Your parents would show you the value of each, both in word and deed. You would be allowed the freedom to make mistakes with your money, like overspending or over giving, and face the consequences in a safe and secure environment.

Eventually, you would get your own bank account and an after-school job. Then, as a young woman, you would go to college and graduate without debt because of the way you and your parents worked and saved. After college, you marry and live happily ever after with a well-functioning husband who understands the money world as well as you do. You raise your children to do the same.

Unfortunately, most of us did not grow up this way. If you did, I am so happy for you because you are well ahead of most when it comes to understanding personal finance.

Even if your parents loved you and provided for you, that doesn’t mean they had the knowledge or experience to teach you all about personal financial management. And, while some schools value financial education, most do not offer it. For many of us, our greatest financial lessons came from making mistakes and getting hurt, ripped off, or manipulated. I know, because that’s how I learned.

Today, I want to save you some pain and suffering.

The Most Important Thing You Can Do For Your Finances

My number one piece of advice may sound cliche, but you know how powerful it is: PRAY. Bring all of your needs to God and ask him for guidance, wisdom, and resources. Follow God’s direction and TRUST Him to keep his promises when things don’t make sense.

As Christians who live and breath to serve Jesus, we can’t always horde our savings for a proverbial retirement plan. We can’t always save for goals when we see the need to give and feel the call so strong on our hearts. We can’t do many things that the world tells us to do, so we need to hear and obey what God tells us to do. As his stewards, though we can’t do everything that may sound good, we can be wise and operate our finances with our eyes open so that we can see how God might use us to benefit the Kingdom around us.

Seven Steps To Financial Success For Christian Women

In addition to seeking God’s wisdom and direction, here are some other things that will help you be successful with money:

1. Track Your Earnings

Keep track of everything that you earn. This should be everything that you receive, even if it doesn’t come in a traditional form like a paycheck.

2. Spend, Save, & Give

Allocate your earnings into three categories: spending, saving, and giving. Pray and allow God to direct you in what percentage of your income should go towards each category. It can also help to work with a professional to determine the appropriate level of spending and giving in relation to your unique circumstances.

3. Make A Plan

Plan out on paper or on a computer what you expect your financial situation to look like in the foreseeable future. Determine your goals and plan out action steps that align with them. When you have to make a difficult decision, you can refer back to this plan for guidance, knowing that you will be moving in the right direction.

4. Stay True To God’s Call

Never compromise the calling on your heart for financial gain. The world will try to tempt you, but stay true to God’s call. Also, don’t hesitate to alter your plan when God speaks something different to your heart.

5. Treat It Like A Business

In order to be a good steward, you should treat your ministry as a business. Be as careful as a business owner fighting to stay in business. When you’re in need of additional information before making an important decision, work with someone who has business, non-profit, and Biblical know-how.

6. Lead By Example

Work to bless others in all you do, leading by example. The way you manage the financial resources you are given is an example for those who work with you and look up to you.

7. Don’t Worry

Remember Matthew chapter 6 as the guide for how to be successful. The whole chapter is essential, but the key is in the final verse that Jesus leaves us with, “Therefore do not worry about tomorrow, for tomorrow will worry about itself. Each day has enough trouble of its own.” (Matthew 6:34, NIV)


I hope you find these tips helpful. Finally, thank you so much for your ministry! You are an important part of God’s Kingdom and you have no idea how what you are doing right now will impact eternity.

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The 2018 Form 1040: How It Looks & What It Means For You

by Monday, January 14, 2019
Picture of the 2018 IRS Form 1040 with blog post title: The 2018 Form 1040: How It Looks & What It Means For You

In just a few short weeks, tax season begins! Now, this isn’t like the Christmas season where everyone is giddy, singing, and trying to start it earlier and earlier each year. For most people, tax season is more akin to going to the dentist than to Disneyland.

 

This year, though, there is more excitement than normal. Why? Because we have new tax forms, thanks to the new law that was passed a year ago.

 

What, you don’t think that’s exciting? It’s been decades since the Form 1040 has gotten a makeover. She was still wearing bell bottoms, and I mean the ones from the ‘70s, not the ‘90s!

 

Ok, so maybe new tax forms aren’t your idea of fun, but they are important. You are going to be signing these forms sometime in the next couple of months, so you should probably take a look at them.

 

Form 1040 Changes

In June of 2016, Republicans from the House of Representatives announced that they wanted to simplify the tax code to the point where most people could file their taxes return on a postcard. Did they do it?

 

Depends on how you define a postcard! They didn’t meet the international standard of a 5.8” x 4.1” card, but they did get it down to a half page. Luckily, the Universal Postal Union is a little bit more flexible and allows for larger postcards. This is what the new 1040 looks like:

 

Picture of the front side of the 2018 IRS Form 1040

 

Aside from the size, the biggest difference is on the right-hand side. See how the little boxes and math problems for exemptions are gone? That’s because there are no more exemptions, which was one of the key changes in the legislation.

 

All of the actual numbers were moved to the back, as you can see here:

 

Picture of the back of the 2018 IRS Form 1040

 

A lot of familiar lines were removed in order to fit it onto a smaller page, as you can see. Most people’s favorite part of this side is the left-hand column that lists the much higher standard deduction.

 

New Schedules

What happened with all those other lines? Did they really simplify things that much?

 

No!

 

C’mon, this is the US government we’re talking about here! When has simplification ever been one of their strengths?

 

They simply cut out those lines that don’t apply to everyone and moved them to new forms, or schedules. Six new ones, to be exact. Yep, that means that for me and for some of you, you’ll actually have to fill out MORE forms this year. These are the new schedules:

 

Schedule 1: Additional Income And Adjustments To Income

 

This is a lot of the stuff that used to be on the lower half of the first page of Form 1040. You will need to fill out this form if you fill out a Schedule C (for money from performing weddings or other ceremonies or special offering you receive not through your church), have capital gains or losses from investments, earn royalties, or have income from rental properties. You will also need to submit this schedule to deduct your IRA or health savings account contributions and half of your self-employment taxes.

 

Picture of the 2018 IRS Form 1040 Schedule 1

 

Schedule 2: Tax

 

You probably aren’t subject to the Alternative Minimum Tax, so you would only need to submit this schedule if you made more than expected and need to refund the government part of the Premium Tax Credit they gave you to purchase healthcare.

 

Picture of 2018 IRS Form 1040 Schedule 2

 

Schedule 3: Nonrefundable Credits

 

You will only need to fill out this form if you are eligible for the foreign tax credit, child and dependent care credit, education credits, retirement contribution credit, or residential energy credit. These credits lower your tax bill but you don’t benefit if the credit amount exceeds your tax liability.

 

Picture of the 2018 IRS Form 1040 Schedule 3

 

Schedule 4: Other Taxes

 

If you haven’t opted out of Social Security, you will definitely have to file this schedule. This is where you enter your SECA taxes from Schedule SE as well as any other taxes you may owe.

 

Picture of the 2018 IRS Form 1040 Schedule 4

 

Schedule 5: Other Payments And Refundable Credits

 

If you pay quarterly estimated tax payments, this is the form that you will use to get credit for them. This is also where you will claim your Premium Tax Credit for your 2019 healthcare expenses.

 

Picture of the 2018 IRS Form 1040 schedule 5

 

Schedule 6: Foreign Address And Third Party Designee

 

You only need to fill out this form if you have a foreign address or want to give someone else the right to speak to the IRS on your behalf.

 

Picture of the 2018 IRS Form 1040 schedule 6

 

Basically, they took the old Form 1040 and cut it into 7 different pieces. You may have noticed some lines on those forms that say “Reserved.” That just means they are saving room so they can add more to these forms in the future.

 

There you have it. A sneak peek at what filing your tax return will look like this year. Now, when your tax preparer starts talking about schedules with numbers instead of letters (don’t worry, all of those still exist and need to be filed too!), you won’t think they’ve gone crazy or you’re hearing wrong.

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Is The Sky Really Falling? The Truth About What Is Going On With The Markets & Economy

by Monday, December 24, 2018
Picture of a man looking up at the stores with blog post title: Is The Sky Really Falling? The Truth About What Is Going On With The Markets & Economy

Today and tomorrow people all around the world are celebrating the fact that the creator of the universe found it worthwhile to come to Earth in human form to give us a chance at a relationship with him.

 

In light of this mind-blowing truth, you really have no reason to worry about anything that I am going to write about in this article. None of it really matters in light of eternity. However, with all of the media headlines these days, I thought you might appreciate an unbiased overview of what is going on with the markets and economy these days.

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