Breaking News: Congress repeals unpopular tax reporting requirement for businesses. The measure now heads to the president’s desk for his signature. See #5 below. (4/5/11 Trish Turner/Fox News)
By Shannon Baker, BCM/D National Correspondent
COLUMBIA, Md.—It’s time think about taxes. Tom Stolle, the chief financial officer for the Baptist Convention of Maryland/Delaware, shared the following tax changes that may affect the way church ministers file this year.
1) This year individual taxpayers will have until April 18 to file federal income taxes since a holiday in the District of Columbia falls on Friday, Apri
l 15. On this day, local government offices are closed in honor of Emancipation Day, a holiday that marks the anniversary of the signing of the Compensated Emancipation Act, which President Abraham Lincoln signed on April 16, 1862. Though the holiday is annually held on April 16, it will be observed this year on April 15, since April 16 is a Saturday.
2) The business mileage rate for 2011 is $0.51 per mile, compared to 2010’s $0.50 per mile, Stolle said.
3) He also explained that ministers will receive a financial benefit from the recent tax legislation signed by President Barack Obama on Dec. 17. Their SECA Social Security tax rate will drop from 12.4 percent to 10.4 percent. The additional Medicare tax rate of 2.9 percent remains in effect. Ministers, for tax purposes, will see their total SECA tax rate drop to 13.3 percent as compared to 15.3 percent in previous years.
4) Non-ministerial employees will also receive a one-year two percent cut in their Social Security taxes under the Tax Relief Unemployment Reauthorization and Job Creation Act of 2010. For employees, this means that the Social Security payroll tax portion paid by individuals as deducted from their paychecks decreases to 4.2 percent from 6.2 percent. Employers will continue to pay their 6.2 percent portion of the tax. These decreases are for one year only, in 2011. In 2012, the rate moves back up to the previous level.
Since the payroll tax is deducted from an employee’s gross pay, this would result in an increase in a worker’s take home pay for the 2011 calendar year, Stolle said.
Because the bill was signed in late December, “for many, the news came too late to incorporate the changes into the first paychecks of the year,” he added, indicating that churches will need to retroactively correct any over-withheld Social Security tax on future paychecks. Employers had until March 31, 2011, to correct any over-withholding amount, he said.
5) Stolle also pointed to an amendment to the tax code (part of the healthcare reform legislation – The Patient Protection and Affordable Care Act) requiring all companies, including churches and other non-profits, to issue 1099-MISC forms to corporations to whom they pay $600 or more in a calendar year. This applies to payments made after December 31, 2011. (Congress repeals unpopular tax reporting requirement for businesses. The measure now heads to the president’s desk for his signature. 4/5/11 Trish Turner/Fox News)
The expanded 1099-MISC form reporting would be used to track payments for services and tangible goods from corporations.
“Exempted from this requirement are payments made to tax-exempt corporations. For example, a church that is a tax-exempt corporation would not have to issue a 1099-MISC form to another tax-exempt corporation for the purchase of $600 or more of materials,” Stolle said.
Proponents of the amendment claim that the 1099 requirement will allow the federal government to gain more than $300 billion each year in tax revenue on income that goes unreported.
What does that mean for churches?
“That means that if a church buys over $600 worth of Bibles in a calendar year from a corporation that is not tax-exempt, such as Wal-Mart or Target, they have to submit a 1099-MISC to the company from whom they purchased the Bibles,” Stolle explained.
He thinks that the task will put pressure on small churches as additional hours of administrative work, resulting in additional time and money, will be required to comply with the amendment to the tax code.
Churches would have to obtain EINs (Federal Tax Identification numbers) from each company—whether it be a utility company, office supply store or even Wal-Mart—which requires sending and receiving individual W-9 forms to gather these numbers so that the 1099-MISC forms can be properly completed.
Church treasurers also must monitor even more closely what and where the church’s money is spent.
“I think that this could cause a volunteer church treasurer to say, ‘Forget it. This is too much work to do, which will put stress on some of our churches as they seek to find replacement volunteers. Perhaps they decide to employ someone to do this,” Stolle commented.
He’s not the only one who is concerned.
Momentum is growing to get rid of these requirements and the burdens it places on small businesses, not to mention the bureaucratic nightmare the requirement will create at the IRS.
The U.S. Senate passed a repeal with 81 votes in January, but the House still needed to take action.
Then, on Feb. 17, Dave Camp, chairman of the Committee on Ways and Means introduced H.R. 4, the Small Business Paperwork Mandate Elimination Act of 2011 and H.R. 705, the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011, to repeal the requirements.
In his opening statement, posted on http://republicans.waysandmeans.house.gov, he called the repeal a “win-win-win” for taxpayers.
Rather than inundating individuals with extra requirements, the Committee suggests focusing attention on the billions of taxpayer dollars that are spent each year on subsidies for individuals who do not qualify for them, some of which are outright fraud.
“In rooting out this waste, fraud and abuse, we will save taxpayers $25 billion over the next 10 years,” Camp said.
When combined with the repeal of the two 1099 reporting provisions, the amended H.R. 705 will reduce the deficit by $166 million.
Bringing it closer to home, Stolle urges ministers to follow the news concerning a repeal because ultimately, the decision affects their ministries.
He stands ready to help churches, ministers and lay leaders obtain helpful financial information, but notes that they should consult with professionals regarding tax and legal advice for their particular situations.
For more information, contact Stolle at tstolle@bcmd.org or (443) 250-2554.