Church leaders urged to be wise managers of Lord’s money, educated on tax laws

Church leaders urged to be wise managers of Lord’s money, educated on tax laws

It’s the Lord’s money and church leaders need to use it wisely, said Lee Wright, coordinator of church compensation services for the Alabama Baptist State Board of Missions.

Wright speaks on this topic often. In fact, he led 10 “Church Financial Issues” conferences in 2017. He discussed a variety of financial issues in speaking to church leaders during those conferences.

Business mileage deduction. To be considered nontaxable, automobile expenses should be part of a minister’s accountable reimbursement plan. Without such accountability at least every two months, these expense reimbursements are considered taxable income, Wright said.

Tax audit. The probability of a church tax audit is rare, Wright said. If the Internal Revenue Service (IRS) were to contact a church, it would normally be by letter explaining the error and the amount owed. If the church agrees, the church pays the bill; if not, the church responds with reasons for disagreement. Audit rates are a bit higher for ministers than other taxpayers, so ministers must know and follow tax law.

Social Security. Some ministers begin to take Social Security benefits before full retirement age to supplement their incomes. The amount a minister can earn from employment before full retirement age without impacting Social Security payments was $16,920 (including housing allowance) in 2017 and could be more than $17,000 in 2018.

Housing allowance. “The ministers’ housing allowance continues to be a court issue,” Wright said. “The Freedom from Religion Foundation has challenged this benefit in court, but we recommend that ministers continue to take full advantage of it until a final ruling comes, possibly from the Supreme Court.”


A housing allowance is subject to Social Security and Medicare taxation at the self-employment rate of 15.3 percent but it is not subject to federal income tax, Wright explained.

“The amount claimed each year must be justified but there is no dollar limit or percentage limit for the minister,” he said.

W-2 forms/church contribution statements. Wright said W-2 forms are due to recipients by Jan. 31 for both state and federal taxes. He cautioned that those who wish to file their returns early should wait until they have their church contribution forms in hand.

“The IRS has taken the position that donors must have their church contribution statements prior to filing and that not following this rule could result in denial of all the contributions,” he said. “We think churches should put a cautionary note in the bulletin to let members know about this.”

Health care. There is much anxiety about health insurance today and the rise in health care cost has impacted the nation and ministers, Wright said. The Affordable Care Act, he reminded church leaders, “continues as the law of the land.”

“Health coverage for ministers must be a group plan for it to be a tax-free benefit not included on the W-2, although there is a current exemption for ‘groups fewer than two.’ Thus a single-staff church can provide this benefit. All health plans provided by GuideStone Financial Resources are considered group plans, even in a single-staff church,” he said.

“Some ministers have opted out of Social Security, but this also means they’re ineligible for Medicare unless they have it as a spouse or with 10 years of secular work,” he said, adding that it would be “very difficult” for a retired minister to afford health care without Medicare.

Private benefit. Wright discussed “private benefit,” which might occur if a church member taught music lessons or directed an exercise class at the church facility and accepted fees from participants.

Personal benefit

“The IRS doesn’t think anyone should have personal benefit in an organization that receives tax-deductible gifts,” he said.

“It can be argued that it’s personal benefit if the teacher or leader uses church equipment and facilities without reimbursement. It’s much better for the church to control these kinds of ministries and pay the leaders a salary.”
Designated funds. Wright advised caution regarding churches receiving designated funds, and he emphasized that any designated account should be church-approved and church-controlled.

“It’s best to label the funds broadly, such as ‘building fund’ rather than ‘new sanctuary fund.’ This gives the church flexibility if its plans change over time,” he said.

Internal controls. Churches should exercise internal controls over contributions and expenditures, Wright said, suggesting that churches separate duties and use several people in this process.

“For example, one person might issue checks and two others might sign them. Counting committees should rotate. And occasional audits are good. These help those who handle money know they’re doing it correctly,” he said.

Electronic giving. Audience members asked about the growing practice of electronic giving, and Wright said he believes checks would be discontinued in the future.

“In other countries they’re discontinuing paper checks,” he said. “In America we may see banks begin charging for each paper check and the effect would be the same. So we need to plan for additional means of donor contributions.”

Lee Wright may be contacted at 1-800-264-1225, ext. 241, or by email at


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