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How To Set Up A Church Accountable Plan To Reimburse Ministry Expenses

by Monday, April 29, 2019
Picture of a hand with a pen writing out plans with blog post title: How To Set Up A Church Accountable Plan To Reimburse Ministry Expenses

Last week we discussed the value of an accountable reimbursement plan for churches now that pastors can no longer deduct their unreimbursed business expenses. Today, I will tell you how to actually set one up.

What Makes A Reimbursement Plan Accountable

The confusing thing about accountable plans is that you don’t need to file any forms or get any kind of permission from the IRS. We’re used to needing authorization for things, like Form 4361, so we get nervous when we don’t have the IRS’s official stamp of approval. However, you don’t have to communicate with the IRS about an accountable plan, you just have to follow their rules.

What makes a reimbursement system an accountable plan is that it complies with these three IRS rules:

Expenses Must Be Ministry-Related

The expense that you’re seeking to be reimbursed for must have been incurred while performing services as an employee of your employer (the church). I’m calling them ministry expenses here because that’s what they are for pastors and churches, but the IRS calls them business expenses. For our purposes, the words business and ministry are interchangeable.

Basically, any expense that was previously deductible is allowed under an accountable plan. Examples of qualifying expenses are:

  • Ministry use of an automobile: IRS standard mileage rate and parking fees and tolls (miles between the church and home do not count)
  • Convention, conference, seminar, and workshop expenses
  • Ministry travel: lodging, transportation, and meals on overnight trips (receipts are not required for most travel expenses under $75, not including lodging)
  • Continuing education expenses (if it does not qualify you for a new position)
  • Sermon resources and educational material, if church-related
  • Subscriptions, books, internet, and software, if ministry or work-related
  • Office supplies and church gifts
  • Ministry-related legal and professional services
  • Equipment such as computers. Cell phones are only reimbursable for the portion of their use that is ministry-related and require a detailed accounting of ministry versus personal use.
  • Hospitality and entertainment when church-related. Reimbursements can cover the entire cost of meals.


If the church reimburses an employee for expenses that are not ministry-related, then they must be reported in the employee’s wages for income tax purposes and are not deductible.

Expenses Must Be Accounted For In A Timely Manner

Accounting for your expenses means that you have to keep a record of them along with proof like a receipt. It works the same way as if you were deducting them on your personal tax return. You can use a church-provided form, diary, account book, log, statement of expense, or another similar record to document each or your expenses when they occur (or shortly thereafter). Your records should show:

  • Date
  • Place
  • Description of expense
  • Ministry purpose
  • Names or ministry relationship of people involved
  • Dollar amount


In addition to keeping adequate records, they must be submitted to your church in a timely manner. “Timely” is a very subjective word and open to interpretation. The IRS acknowledges that “a reasonable period of time” can vary depending on the facts and circumstances of your situation. However, to be safe, they recommend giving advances within 30 days of the expense incurring and accounting for expenses no more than 60 days after incurred.

Excess Reimbursements Must Be Returned In A Timely Manner

Any advances that are not completely used on qualified expenses or adequately accounted for within a reasonable period of time must be returned to the church. If they are not returned, they will count as taxable income for you.

Again, the IRS offers guidelines for what they consider to be a reasonable period of time. Excess reimbursements must be returned within 120 days after the expense was paid or incurred. Another option is for the church to issue quarterly statements asking employees to return or adequately account for outstanding advances. In those cases, the employee has 120 days after receipt of the statement in which to comply.

How Reimbursements Under An Accountable Plan Are Reported To The IRS And Taxed

Under an accountable plan, reimbursements come out of the church’s funds and not the employee’s salary. The reimbursements are not reported to the IRS as taxable income on Form W-2. And the employee does not need to report them to the IRS either. If the church mistakenly includes them on Form W-2, they should issue a corrected form as soon as possible.

Reimbursements that do not qualify based on the above rules because they are not ministry-related or were not substantiated in a timely manner do qualify as taxable income. These amounts are included in wages on an employee’s Form W-2 and subject to income and payroll taxes.

How To Establish An Accountable Plan

As I mentioned above, there are no specific IRS forms that you need to fill out or get approved to establish an accountable reimbursement plan. Your church simply has to make an official decision that they are going to have one. It doesn’t even require a church vote or anything like that. As long as the church has given their finance committee or executive staff power over budgeted funds, then they can decide to establish an accountable plan and the IRS is okay with it.

Just say the word and you have an accountable plan. Of course, you need to train your employees on how to follow the plan correctly. If they don’t do it right, they will receive no benefit from it. Also, if the committee or staff overseeing the plan wants to place additional requirements on it beyond what the IRS lays out, that is their prerogative. And remember, the accountable plan is open to all employees of the church and not just the pastor or leadership.


I hope you find this article helpful. If you need more detailed information about things like per diem travel reimbursement or other specific situations, you can find it on this IRS web page.

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How Pastors & Church Employees Can Get A Tax Break For Their Unreimbursed Business Expenses

by Monday, April 22, 2019
Picture of a gas station pump with blog post title: How Pastors & Church Employees Can Get A Tax Break For Their Unreimbursed Business Expenses

If you’re like a lot of clergy members, you had an unpleasant surprise this tax season when you learned that you can no longer deduct unreimbursed church business expenses with your itemized deductions. You’re probably used to covering a lot of church expenses yourself, knowing that you’ll get some kind of reward for it come tax time. Except this year it didn’t come.

Why not?

What Happened To The Unreimbursed Business Expense Deduction

Part of the 2017 Tax Cuts & Jobs Act was the elimination of the unreimbursed business expense deduction. The goal was to simplify taxes as much as possible, so a number of deductions were eliminated or changed.

Before 2018, you could deduct unreimbursed business expenses if you itemized your deductions. The deduction amount would be calculated on Form 2106 and then deducted on Schedule A so that you wouldn’t have to pay income taxes on it. That line (line 21) is gone from the new Schedule A.

How To Avoid Paying Taxes On Unreimbursed Church Business Expenses

So, the deduction is gone. What can pastors do? Are you just simply out of luck?

I’m happy to tell you that no, you’re not out of luck. There is another way to avoid paying taxes on the church expenses that you pay for out of pocket.

How? By having your church set up an Accountable Plan.

What Is An Accountable Plan?

An accountable plan is a business expense reimbursement plan that follows IRS rules. With an accountable plan, expenses can be reimbursed without being subject to withholding taxes or W-2 reporting. This is important for pastors because it is one of the only ways (aside from a 403(b) plan) to lower taxable income for Social Security purposes.

If your church reimburses you with a non-accountable plan (meaning it doesn’t follow IRS rules), then that reimbursement is considered part of your compensation, which is taxable. Even if you don’t end up paying income tax on it (because of the housing allowance, deductions, etc.), it is still subject to the 15.3% self-employment taxes (for those who haven’t opted out).

What Church Expenses Qualify?

Accountable plans cover all expenses that are ordinary and necessary. Ordinary means that it is common and acceptable for people in your position. If you are a Methodist minister who wears a robe every Sunday, then cleaning those robes would be an ordinary expense. If you wear ripped jeans when you preach on Sunday, then dry cleaning costs for robes would not be ordinary for you.

A necessary expense is one that is helpful and appropriate for someone in your position. If you live in the Montana countryside, then the gas you use to drive to your parishioners’ homes is a necessary expense. It’s not like you can take the subway or anything.

Also, though it seems obvious, the expenses must be ministry expenses and not personal. Your travel expenses to visit your family for the holidays do not count, even if your brother-in-law really needs Jesus. It’s just not the same as when you travel to visit one of your congregation members in the hospital.

Other Benefits Of Accountable Plans For Churches

Another great thing about accountable plans is that they aren’t just for pastors. Unlike perks like the housing allowance, all church employees can benefit from an accountable plan. That means the children’s ministry coordinator, the church secretary, even the janitor can make use of the plan.

Finally, and this is usually a church’s favorite, they are free! You don’t have to pay a bunch of money to set up or maintain one. Complying with the IRS rules may take a little bit more staff time, but other than that, they’re free. Does it get any better than that?

So, if you regularly pay church expenses out of your own pocket and are mourning the loss of the unreimbursed business expense deduction, cheer up. Have your church set up an accountable plan and you’ll be better off than when you started.

This article explains exactly how to set one up.

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What Is Modern Monetary Theory & Why Should You Care?

by Monday, April 15, 2019
Picture of coins with blog post title: What Is Modern Monetary Theory & Why Should You Care?

As a parent, have you ever seen one of your kids walking down the hallway with a large stick and been forced to ask, “And what are you planning on doing with that?”

You don’t ask because you’re particularly interested in the stick. You ask because that stick is a sign that something is going to happen soon. And you’re going to have to deal with the consequences.

The Growing Popularity Of Modern Monetary Theory

Well, some prominent left-leaning politicians are waving around a new stick these days: Modern Monetary Theory (MMT). The theory is quickly gaining popularity, so it is important for you to be familiar with it, regardless of your political persuasions.

MMT is popular because it allows for seemingly unlimited government spending and deficits without negative consequences. Understandable, right? Don’t we all wish that money grew on trees?

How Modern Monetary Theory Works

Well, according to MMT, money grows on printing presses. Because, well, it does. We create money by printing it.

The theory states that as long as a government prints its own money and issues debt in its own currency, it can spend and take on debt to its heart’s content without worrying about paying it back. There is no need to collect taxes to pay for the debt, you can just print more money.

This is a relief to everyone who is concerned about how our country’s growing debt burden is going to affect future generations. But, is it too good to be true? What’s the downside?

The downside is inflation. You may have learned in Economics class that the risk of printing lots of money is inflation, where the money simply isn’t worth as much anymore. That $10 that used to get you a double Western bacon cheeseburger super-sized meal will only buy you a measly little kid’s burger, and not even a drink to go with it. That’s inflation.

It’s okay for the government because they can print money. But you can’t. High inflation is usually bad for everyday people.

How Modern Monetary Theory Addresses Inflation

And MMT acknowledges that. Instead of seeing taxes and debt as a way for the government to pay for things, MMT sees them as tools to combat inflation.

Prices beginning to inflate because there is too much money in the economy?

Take some money out.

How?

By raising taxes or selling bonds. When we give money to the government by either paying taxes or buying their bonds, it takes that money out of the economic system.

MMT holds a very different perspective on debt and taxes than the traditional view. Usually, when government spending is proposed, we ask, how are we going to pay for it? We want to know what kind of debt or taxes will be required to cover the cost.

Proponents of MMT say that we should instead be asking, how will this affect inflation? We don’t have to worry about how to pay for things (just print the money!), our only real concern should be inflation.

What Does It Mean For The Federal Deficit?

You may be getting suspicious that espousing MMT could lead to greater federal budget deficits. You’re right. In fact, according to MMT, a deficit is a good thing. A $1 trillion deficit is an extra $1 trillion in the economy. As they say, the government’s deficit is the people’s surplus.

Unemployment is seen as evidence that the deficit is too small. MMT strives to find a perfect equilibrium where there are low unemployment and low inflation, regardless of debt or deficits.

What Does This Mean For You?

Why does any of this matter to you?

Well, the politicians promoting this theory are very popular, especially with young people. If you don’t think young people’s trends matter, LOL. Yes, you know what LOL means. And it’s not because you learned it from Merriam-Webster. Young people have more power than any of us old fogeys want to admit.

Now, MMT could easily fizzle out as completely as MySpace and mullets. However, it could also become the “new normal” like the internet and cell phones. Therefore, it is important for you to understand. For all we know, we could be the guinea pigs that get to test it out for the first time in the coming decades. It has yet to be proven, do you think it will work?

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How To Calculate Fair Market Rental Value For The Clergy Housing Allowance

by Monday, April 8, 2019
Picture of a house with a car in front with blog post title:How To Calculate Fair Market Rental Value For The Clergy Housing Allowance

The ministerial housing allowance is the biggest tax benefit available to pastors. It allows you to exclude your housing costs from gross income for your federal income taxes. Thus, all of your housing expenses, from your mortgage payments to your light bulbs, are income tax-free. (You still have to pay self-employment taxes on them, though.)

Ministerial Housing Allowance Limitations

There are nevertheless limits to how much can be excluded with the housing allowance. Your clergy housing allowance is limited to 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.


While each of these criteria is important, today we are only going to address the fair market rental value of the home, which is the most difficult of the above to calculate.

Calculating Fair Market Rental Value

The IRS does not spell out how they want it calculated, but there are two different methods that the tax courts have allowed people to use when doing so. The first is the comparable fair rental value and the second is the comparable sales method.

Comparable Fair Rental Value Method

The comparable fair rental value is the most common and should be fairly simple if your home is generic. You simply ask, what would a stranger pay to rent your house with all of your furnishings included? A local real estate agent should be able to tell you this. You can also look at rental listings for comparable homes in the local  newspaper or from a website like craigslist.com.

For the rental value of your furniture, you could simply add a little extra (be realistic!) or consult with a furniture rental company. However, the rental value that the IRS is interested in is that of the furnished home, not the total of the rental value of the house and the rental value of the furnishings as calculated separately.

Also, it is important that you use local comparisons. Housing costs are significantly different in California and Kentucky, so you need to make your calculations based on your specific real estate market.

Comparable Sales Method

The next method you can use to calculate the fair market rental value of your home is the comparable sales method and it has two steps. The first is to figure out how much your house would be worth if you were to sell it. You can talk to a local real estate agent, check public real estate sales records for comparable homes, or consult a website like zillow.com or redfin.com. Remember, those websites give estimates based on local comparisons, so the more unique your house is, the less accurate their estimates will be.

The second part of the comparable sales method requires you to determine the rate of return on an investment that a stranger would require on a similar property. If a real estate investor came and bought your house from you, what rate of return would they need to make it worthwhile for them? That’s called the capitalization rate.

The capitalization rate will vary based on your local real estate market. Again, your best source for this kind of information is a real estate agent experienced in rental properties. In one tax court decision, the judge applied a capitalization rate of 13%. Because of this, 13% is commonly quoted and used for calculating the fair market rental value for housing allowances.

Be aware, however, that the court case was completely unrelated to the housing allowance. The property in question was used for a gas station, which carries significantly higher risks than a home. Therefore, I would caution against using 13% as a rate of return based solely on the aforementioned court case. A knowledgeable real estate agent will be able to tell you if 13% is a reasonable number for your local market.

Once you’ve determined your home’s sales value and a reasonable capitalization rate, multiply them to get the fair market rental value. For instance, if your home is worth $250,000 and your local capitalization rate is 12%, the fair market rental value that you should use for your housing allowance calculations is $30,000.

Bear in mind that these are rental values for your house and furniture. On top of that, a renter would still have to pay utilities just like you do. So, you would add the cost of utilities to the $30,000 calculated above to arrive at your maximum allowable housing allowance.

Record Keeping & Calculation Frequency

It is important to keep a record of the fair market rental value that you calculated and the method that you used. If the IRS audits you, they may require it to ensure that you did not claim an excessive housing allowance. Without records to back up your claims, they may reassess your tax liability and you would owe both back taxes and penalties.

At this point, you may be thinking: These calculations are time-consuming and tedious. Do I really have to do them every single year?

In an ideal world, yes, you would do them every year. However, even the US Tax Court agrees that it’s a pretty big burden to put on pastors. They had initially ruled in a 2000 court case that it would be too much work for pastors to be forced to calculate the fair market rental value of their homes. However, Congress went ahead and changed the law in 2002 to include the fair market rental value in your housing allowance calculations.

If it’s too much for you to calculate every single year, your second best option is to calculate the fair market rental value every few years. In the years that you don’t calculate it exactly, just increase the amount by the rate of increase in rental prices in your area. So, if the fair market rental value of your home was $24,000 in 2017 and rents went up 4% in your area, then $24,960 would be a fair estimate of the fair market rental value for 2018.

Remember, it is not your church’s responsibility to calculate the fair market rental value of your home or parsonage (for SECA purposes). It is YOUR responsibility. You are the one receiving the tax benefit. I hope this guide makes it a little bit easier for you.

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Does It Really Matter If Your Financial Advisor Is A Christian?

by Monday, April 1, 2019
Picture of a person standing under a cross while the sun is setting with blog post title: Does It Really Matter If Your Financial Advisor Is A Christian?
Minneapolis, MN-based virtual Christian fee-only financial planning firm Guide Financial Planning and Christian financial advisor advertisement.

“Then he looked across the table at us, disappointment written all over his face, and said, ‘If only you had worked more…’” The dean of women and a beloved professor at the Bible college I attended was telling us about an encounter she had with her financial advisor. While her children were young, she chose to put her career on hold in order to raise them. Now that they were grown, the financial advisor was telling her and her husband that they were not on track to retire with their peers.

When she told us this story, I wanted to jump out of my seat and tell her, “They aren’t all like that! There are good ones out there!”

It pained me to hear that a financial professional had made her feel like a failure simply because he had a different worldview. She and her husband may not have enough money to stop working today and spend the last decades of their lives on a golf course, but one of her children is a pastor and church planter and the other one is a missionary in Southeast Asia, so I think she made the right decision.

Does Your Financial Advisor’s Religion Matter?

When you think of working with a professional, religion isn’t usually the first thing that comes to mind. It’s not like dating and marriage. So what if your dentist has a different worldview than you do. Does that mean she doesn’t clean your teeth as well? Not really.

Atheist plumbers can unclog toilets and Jewish lawyers can write good wills, so why would financial professionals be any different? The difference is in worldview and priorities. I think it’s safe to say that people of all faiths believe that toilets should flush rather than overflow. And people of all different religious backgrounds agree that legal documents should be written in accordance with the law.

But finances are different. They’re more personal. They’re more subjective. There is a lot more variance as to how people view money and its purpose and management.

Not All Non-Christian Advisors Are Bad

Does that mean that only Christian financial advisors are good? By all means, no. There are many true professionals out there who are able to set their own personal beliefs aside in order to help their clients. There are many who understand that there is much more to life than just accumulating wealth.

Just because someone hasn’t met Jesus yet doesn’t mean they can’t help you be a better steward of your money. Who knows, maybe God has paired you with them so that you can be a light in their world. Just because a financial advisor is not a Christian doesn’t mean you can’t have a fruitful and successful relationship with them.

Not All Christian Advisors Are Good

In much the same way, just because an advisor professes to be a Christian does not mean that he shares your worldview or has your best interest in mind. Many advisors use their religion as nothing more than a marketing tool.

Christians often trust other Christians. Some unscrupulous people take advantage of that fact. And it doesn’t just happen in the finance industry, it happens everywhere. You should never hire someone just because they profess to be a Christian or have a fish on their business card. You need to practice discernment and be wise.

The Difference In Working With Someone Who Shares Your Belief System

Working with a financial professional who truly understands Biblical stewardship and shares your heart for God’s Kingdom can make a world of difference, though. Recently, I’ve gotten to witness this firsthand. Since my goal is to become a financial advisor, this spring I started apprenticing with one in order to get some hands-on education.

Seeing how true faith and finance can intersect has been an eye-opening experience. Whereas most financial advisors start out with questions like At what age do you want to be able to retire? and How much money do you want to accumulate?, this guy starts with What does stewardship mean to you? Sounds to me a lot more like a pastor than an investment advisor chasing returns. Because that’s how it’s supposed to be.

A financial advisor should basically be a pastor for the financial side of your life. They should be there to help you think through your options, articulate your dreams and goals, and then come up with a plan to finance them. That’s much easier done with someone who shares your value system and understands your worldview.

In one of my financial planning textbooks, it talks about budgeting and cash flow planning. It discusses the difference between fixed expenses that you’re committed to paying, like a car payment or groceries, and discretionary expenses that are optional, like eating out or cable TV. The book states, “Some clients who tithe may initially consider monthly gifts in the fixed column. Advisors should consider encouraging clients to classify gifting (including tithing) as a variable expense.”

When I read that my blood started to boil. Financial planning students are being taught to pressure their clients to dismiss Biblical stewardship in favor of a Godless approach to money management.

If you’ve worked with someone who has pressured you to compromise your values or who has made you feel inferior for your choices, I want you to know that you don’t have to. Financial advisors who espouse Biblical stewardship do exist.

How To Find A Christian Financial Advisor

Growing up in a tiny church, I never knew any Christians my own age. When I visited the Bible college for the first time and saw a bunch of my peers passionately worshiping God I had an epiphany. Oh, wow, they really do exist!  

I’d like to give you the same epiphany regarding financial advisors. They aren’t all out there pushing products to pad their own pockets. Biblically wise financial counsel does exist.

If you’re interested in finding a Christian advisor, look first on the Christian Financial Advisors Network. You can also search for one on the Kingdom Advisors website or search for a Christian advisor on the XY Planning Network website. You’ll be amazed at the difference it makes when you’re equally yoked.

I am not affiliated with Christian Financial Advisors Network, Kingdom Advisors, or XY Planning Network and receive no benefit for recommending them. I just know some of their advisors and think you would benefit from knowing them too!

Minneapolis, MN-based virtual Christian fee-only financial planning firm Guide Financial Planning and Christian financial advisor advertisement.
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What Is The Difference Between Seminary Loans And Undergraduate Student Loans?

by Monday, March 25, 2019
Picture of a woman graduating from college with blog post title: What Is The Difference Between Seminary Loans And Undergraduate Student Loans?

A student loan is a student loan, right? Well, not really. There are a lot of different kinds of student loans; subsidized, unsubsidized, undergraduate, graduate, federal, private, parent, etc.

Each type of loan has unique features, both advantages and disadvantages, so it’s important to understand the differences. Many seminary students take out loans not realizing that they are any different than their undergraduate loans. That can be a costly mistake. So, today we are going to discuss the difference between graduate (what you use for seminary) and undergraduate student loans.

The Government Treats You Like An Adult

When you filled out the FAFSA to apply for government aid for your undergraduate degree, you had to include all of your parents’ financial information. Even if you’re living on your own and supporting yourself, the government sees everyone below a certain age as a dependent.

Now that you’re old enough to go to seminary, the government is ready to treat you as an adult. You don’t have to include your parents’ information when you fill out the FAFSA for graduate school. One advantage of this is that it makes it quicker and easier to apply.

There Isn’t Need-Based Aid

You may think that not including your parents’ information on the FAFSA will improve your chances of getting need-based financial aid. Unfortunately, there isn’t much of that available for graduate students.

Pell grants, which are gifts that do not have to be paid back, are not usually available for graduate students the way they are for undergraduates. So, even if the government helped you pay for your undergraduate degree, don’t expect the same help this time around.

Seminary Loans Have Higher Interest Rates

I was just listening to a podcast for financial advisors about student loans. One of the student loan specialists (yes, they do exist) said something that, frankly, shocked me. She said that grad plus loans are a cash cow for the US government. Cash cow is a business term for something that earns you a lot of money with very little effort.

I always thought the government was in the student loan business to help people get an education. Apparently, though, they make a lot of money off of it. The student loan experts were saying that graduate loans have much higher rates so that they can subsidize the undergraduate loans.

For this school year that we’re about to wrap up, the rate for undergraduate federal loans was 5.05% while the rate for Direct PLUS loans for graduates was 7.6%. If you borrow $10,000 and pay it back over a 10-year schedule, that is a difference of $1,550 dollars in interest. The graduate student pays over one and a half times as much interest as the undergraduate student.

Interest Starts Accruing Immediately

Not only do you pay more interest for your seminary loans than undergraduate loans, but the interest starts accruing immediately. If you had subsidized government loans for your undergraduate studies, then they didn’t start accruing interest until you graduated and started to pay them back.

That’s not the case for seminary loans. The government does not offer subsidized loans for graduate school. That means interest starts accruing the moment you take out the loans, no matter how long you stay in school. If you were to borrow $10,000 at the current PLUS loan rates, in 3 years when you finally have your MDiv your loan balance will have ballooned to $12,457. That’s almost 25% more than you originally borrowed.

Should You Take Out Loans For Seminary?

You see, there are some very important differences between student loans for graduate and undergraduate studies. Even though you can borrow more for seminary, it will also cost you more.

If you’ve already gone through seminary and are struggling to pay off your loans, I hope this helps you understand why your balances have grown larger than you expected. If you’re planning on starting seminary in the fall and considering taking out loans, I hope you consider this information very seriously.

No one blinks an eye at someone taking out $50,000 in student loans to go to medical school. The minute that person graduates they’ll be earning at least three times that amount, often even more.

The 2018 salary poll of the Southern Baptist Convention found that full-time senior pastors age 35 and below earn an average of less than $60,000. Full-time ministerial staff of the same age earns an average of less than $50,000. Those are averages, not minimums. Also, that is just the Southern Baptists. Your denomination may pay more or less.

It is important for you to consider how it will affect your life, family, and ministry before you take out seminary loans. Will you be able to follow your call to church planting or the mission field with debt hanging around your neck? Will you feel pressured to postpone having children so your wife can keep working longer to help pay down the balances? What happens if you can’t find a church that will pay you enough to meet your obligations?

Personally, I’m not a fan of debt. I would rather go to a cheaper school or go part-time so that I could pay as I go instead of taking out loans. However, this is your life and your decision. I only ask that you think through your options and consider the consequences of each, and I hope this information helps you do just that.

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Seventh Circuit Court Of Appeals Rules Clergy Housing Allowance To Be Constitutional

by Tuesday, March 19, 2019
Picture of a gavel with blog post title: Seventh Circuit Court Of Appeals Rules Clergy Housing Allowance To Be Constitutional

Though it took five months, the Seventh Circuit Court of Appeals has finally ruled in favor of the clergy cash rental housing allowance (the parsonage allowance was not at issue), declaring it to be constitutional. Here at Pastor’s Wallet, we have been following this story for over a year.

Background

The drama actually began back in 2013 when the leaders of the Freedom from Religion Foundation (FFRF) sued the US government because they believed the ministerial housing allowance to be a violation of the separation of church and state. The judge agreed with them, but it didn’t last long.

An appeals court found that the FFRF lacked standing in the case. Basically, they had no right to sue because they had not been harmed by the clergy housing allowance.

Determined as ever, the FFRF leaders tried to claim a ministerial housing allowance. As expected, they were denied. However, that denial gave them standing to take the issue to court. And so they did.

In October of 2017, the FFRF brought their case back to court and it was tried by the exact same judge. To no one’s surprise, the judge again ruled in favor of the FFRF, declaring the housing allowance to be unconstitutional.

Once again, it was appealed. A three-judge panel of the US Court of Appeals for the Seventh Circuit in Chicago heard the arguments last October, and they have just now issued a ruling. Their decision: the clergy housing allowance does not violate the US constitution.

How The Clergy Housing Allowance Is Constitutional

Our American legal system relies heavily on precedent and case law. That means that not everything is spelled out exactly in our laws. Rather, judges look at previous cases and rulings to guide them on how to decide matters. There were two different Supreme Court cases that they really focused their attention on in coming to a decision regarding whether the cash housing allowance violates the Establishment Clause, or the separation of church and state, as FFRF claimed.

The first case was Lemon v. Kurtzman, which provides three tests to see if something violates the First Amendment’s separation of church and state. The first test is that the law must maintain a secular legislative purpose. The court noted that other non-religious workers also receive employer-provided housing exempt from federal income taxation. Also, the cash allowance is designed to ensure equal treatment among ministers, regardless of where their housing comes from. They found that the way the cash housing allowance is set up in the tax code avoids “excessive entanglement with religion” for the government. The Treasury Department argued that all three of those constitute secular legislative purposes, and the judges agreed.

The second test is that its principal or primary effect cannot advance or inhibit religion. The judges cited a Supreme Court ruling that a tax exemption based on a housing allowance is not a government subsidy. Based on this, the housing allowance passed the second test.

The third test is that the law cannot foster an excessive government entanglement with religion. The Court of Appeals stated that applying housing exemptions to ministers the same way they do for secular employers and employees would, in fact, cause excessive entanglement. The current clergy housing allowance rules do not, and therefore they should remain.

The other past court case addressed is Town of Greece v. Galloway. This case establishes that the Constitution’s separation of church and state must be interpreted by reference to historical significance. The court recognized a lengthy tradition of tax exemptions for religion (even Joseph established one in Egypt back in Genesis!), especially in regard to church-owned property. Such exemptions have never been seen as an establishment of religion and so the appeals judges didn’t see them as such either.  

The Future Of The Clergy Housing Allowance

While this is a great victory for pastors everywhere, it does not mean that the war on the housing allowance is completely over. The FFRF can still take the case to the Supreme Court. Even if they try, though, there is no guarantee that the Supreme Court will hear the case, as they only hear about 1% of the cases presented to them each year.

The FFRF has also indicated that they may lobby members of Congress to repeal the clergy housing allowance. As a counter-measure, you could write to your congressional representatives in support of the housing allowance and encourage your friends and family to do the same.

In light of everything that is going on, this is my advice to you regarding the pastoral housing allowance:

  1. Enjoy it while you have it.
  2. Pray that you can keep it.
  3. Come up with a Plan B in case it all goes away.
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What Kinds Of Student Loans Are Available For Seminary?

by Monday, March 18, 2019
Picture of a seminary student studying on a couch with a textbook and computer with blog post title: What kinds of student loans are available for seminary?

As you look forward to starting seminary in the fall, perhaps the biggest thing on your mind is how in the world am I going to pay for it? If you’re like 69% of college students, you’re probably planning on taking out student loans.

Even if you used loans to pay for your undergraduate degree, things are different once you get your Bachelor’s. Your options have changed. So that you can make an educated decision, here are the loan options available to help you pay for seminary:

Direct Unsubsidized Loans

The federal government offers direct unsubsidized loans to both graduate and undergraduate students. These are not need-based, so all you need is to be enrolled at least part-time in a participating school to qualify.

To apply for these loans, you have to submit the Free Application For Federal Student Aid (FAFSA). The seminary will use the information from the FAFSA to determine how much aid (loans) to award you. The annual limit for direct unsubsidized loans is $20,500 and the aggregate limit, including undergraduate loans, is $138,500.

The current interest rate (until July 1, 2019) for these loans is 6.6% and there is also a 1.062% loan fee. Once you graduate, leave school, or drop below half-time enrollment, you will have a six-month grace period before you have to start paying back your loan. However, interest will accrue while you are in school.

Direct PLUS Loans

If your direct unsubsidized loans are not enough to cover the cost of seminary, you can take out a Direct PLUS loan from the government. These loans do require a credit check. Because of this, you are not guaranteed eligibility, though they are more lenient than most private lenders. Eligibility also includes being enrolled at least half-time.

The borrowing limit is the cost of seminary attendance (as determined by the school) less any other financial aid you have received. So, you should be able to cover all of your costs with a grad PLUS loan. The current interest rate (until July 1, 2019) is 7.6% and there is a 4.248% loan fee. As with the unsubsidized government loan, interest begins accruing immediately. However, you do have a six-month grace period after leaving school before you are required to begin making payments.

Private Loans

While the government loans above have some unique benefits, like flexible repayment options and the potential for loan forgiveness, you may also want to consider private student loans. Private loans are issued directly by banks and credit unions, not the government.

As such, they have different rules for eligibility that may be more flexible than the government rules. Also, some private loans do not have origination fees like the government loans. While direct unsubsidized loans usually have the lowest interest rates, well-qualified borrowers may be able to get lower rates with private loans than PLUS loans.

It’s important to note something that is not on this list- subsidized government loans. Those are the loans that do not accrue interest while you are in school. Unfortunately, those are only available for undergraduate students, so they are not an option for seminary.

Even if you’re very familiar with student loans from your undergraduate days, don’t assume you know everything you need to. Come back next week as we discuss the differences between undergraduate and seminary loans. You owe it to yourself, your family, and your future ministry to make sure you know what you’re getting yourself into before taking out seminary loans.

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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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