Important Tax Updates & Developments You Need to Know About for 2017

Written by Raul Rivera on Jan 12, 2017 in IRS Compliance

Year in and year out the IRS and other government agencies make tax-related changes, updates, and developments that affect churches. As a pastor, your time is spent studying, praying, and counseling while also leading and raising a family, and to ask you to keep up with new tax updates pertaining to you as a minister and your ministry is almost impossible to ask of you. But this is where we can be of value to you and your ministry.

In this post, I want to brief you on some important tax updates and developments that you, as a pastor and church leader, need to know about moving forward in 2017. Some you may already be aware of and others you might not. But no matter what stage your church is in, new or old, big or small, you will want to make sure you take some time to read this post.

5 key tax updates and developments

1. Congress eliminated $100-per-day-per-employee healthcare penalty

In 2015, the IRS implemented a penalty of $100-per-day-per-employee that would be assessed on employers, including churches, who reimburse employees for the cost of health insurance premiums. This has been an unnecessary burden on many small churches and businesses who are unable to provide group health insurance to their employees. 

On December 7th, 2016, Congress passed legislation that eliminates the $100-per-day-per-employee penalty. Under Section 18001 of the 21st Century Cures Act, small employers with less than 50 full-time equivalent employees are now permitted to reimburse employees for the cost of personal insurance premiums or medical visits. President Obama signed this legislation into law on December 13, 2016.

Congress eliminated $100-per-day-per-employee healthcare penalty

Beginning January 1, 2017, the tax law allows for “Qualified Small Employer Health Reimbursement Arrangements” (QSEHRA). In general, these are available to be used by employers who do not offer group heath coverage and have less than 50 full-time equivalent employees. 

In essence, there are three main rules to be mindful of if you choose to offer QSEHRAs:

  • The same terms must be offered to each employee. The only employees who can be excluded from this benefit are those who have been employed less than 90 days, those under the age of 25, part-time employees or seasonal workers, and those who are covered by a collective bargaining agreement. In short, you cannot pay 100% of premiums for pastors and 50% or premiums for the rest of the church staff.
  • The cost of the QSEHRA benefit must be completely employer funded. The purpose of this benefit is to provide an employer-sponsored reimbursement. So, you cannot reduce the amount of an employee’s pay as a result of them accepting the benefit.
  • The QSEHRA you offer cannot exceed the set maximum annual benefit caps. The maximum reimbursement for medical expenses that you can provide through the QSEHRAs is $4,950.00 for single employee coverage and $10,000.00 for family coverage. 

Lastly, take note that a notice of an available QSEHRA benefit must be given to all eligible employees at least 90 days prior to the start of the year, or at the beginning of a new employee’s eligibility. Since issuing a notice 90 days in advance of the 2017 year is impossible because of the effective date of the new law, all participating employers will be in compliance as long as the notice is issued by March 13, 2017.

2. All employers must use a revised Form I-9 by January 22

If your church is planning on hiring new staff members this year, then this one of particular importance.

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In short, all employers are required to use Form I-9 to verify the identity and employment authorization of new employees hired after November 6, 1986. Verifying employment eligibility is important. Although it may seem insignificant, completing the form is a fundamental part of the responsibility of being an employer.

(Recommended reading: “The First Thing Every Church New Hire Must Do”)

Late last year, the U.S. Citizenship and Immigration Services (USCIS) released a revised Form I-9, Employment Eligibility Verification. Take note that you may continue using Form I-9 with the revision date of 03/08/2013 through January 21, 2017. However, by January 22, 2017, you must make sure your church uses the revised Form I-9 with all new hires. (Click here for more information.)

3. New overtime rules delayed by federal judge

In the summer of 2016, the Department of Labor (DOL) announced new overtime regulations that would go into effect in 2016. However, a federal judge in Texas issued a preliminary injunction blocking the new overtime rules from taking place. This indefinite postponement will stand until the judge renders his decision on the case.

It is important to note that the new overtime rules do not have an exemption for employees of churches or ministries.

We will keep you updated with any new developments concerning the new overtime rules. In the meantime, however, it will be good to refresh yourself on the “potential” new overtime rules provided below:

The new overtime regulations include the following updates:

  1. Employees who earn less than $913 per week ($47,476 annually) are now eligible for overtime pay.
  2. The salary threshold will now be updated every three years.
  3. Employers may now include bonuses and commissions to satisfy up to 10% of the new salary level.

(Recommended reading: “Federal Judge Puts New Overtime Rules on Hold”)

4. Minister’s housing allowance under attack

Last year, the Freedom From Religion Foundation filed a lawsuit claiming that the minister’s housing allowance, as described in section 107 of the Internal Revenue Code, “violates the Establishment Clause of the First Amendment to the Constitution of the United States by providing preferential and discriminatory tax benefits to ministers of the gospel.”

We are still waiting for the Seventh Circuit Court of Appeals to rule on the case and we will update you on the court’s decision as soon as a ruling is made. As for now, there are two things for every minister to do:

  1. You need to make sure that you are properly designating your housing allowance. Most churches and ministers do not fully understand it and can get in tax trouble because of it.
  2. Ministers need to get properly educated on what it means to apply for self-employment tax exemption. This exemption is not being challenged, and in my opinion, many ministers qualify for this exemption but do not realize it.

Discover How to Maximize Your Housing Allowance Benefit

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For more information and details on the case challenging the housing allowance, you can read “The Minister’s Housing Allowance Back Under Attack”.

5. New mileage reimbursement rates released

Each year the IRS takes time to reassess the standard mileage reimbursement rates used to calculate the deductible costs for an individual who operates his/her vehicle for business, charitable, medical, or moving purposes. Because of this, it is important for churches to be familiar with these updates for 2017; especially since many pastors and church volunteers use their personal vehicles for church purposes.

Beginning on January 1, 2017, the standard mileage reimbursement rates for the use of one’s personal vehicle will be as follows:

  • 53.5 cents per mile for business miles driven (for employees); down from 54 cents for 2016.
  • 14 cents per mile driven in service of charitable organizations (for volunteers); no change in this rate.

While this information is important for your church to know, it is more important that you know how to properly handle such reimbursements. To better understand how to handle these reimbursements, you will want to read “IRS Updates Mileage Reimbursement for 2017”.

“A cord of three strands is not quickly torn apart”

There are times when we think to ourselves, “I can do this. I don’t need any help.” And while there are times when this may be true, we must guard ourselves from this becoming our primary mentality. 

Ecclesiastes 4:12 (NASB) tells us, “A cord of three strands is not quickly torn apart.”

When it comes to pastoring and church planting, the bottom line is that you will need help along the way. You need help when it comes to growing, leading, and ministering to your church. Additionally, you need help when it comes to your church’s legal foundation and remaining compliant. 

This is where we want to help, and this is where we can help. Our passion at StartCHURCH is to help you and your church to establish and maintain a legal foundation that empowers you to protect and multiply what God has given you to lead. 

Join us at one of our Ultimate Church Structure Conferences to discover the steps and strategies that 1,000s of pastors across the country have implemented in their churches and ministries.

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Raul Rivera

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