Friday, January 11, 2019
Hey Fletch … If a pastor performs a funeral or wedding and is paid directly, the pastor gives the check to our church finance office. I then add it to their salary on their next paycheck. But they sometimes hand me the check and say, “apply it to the designated missions account.” Then I don’t add it to their paycheck.
Do I give the pastor contribution credit? The person who gave the check intended to pay the pastor, not donate the funds. The pastor may not want to pay taxes on it, so that is why he signs it over to the church. Should I insist it go on the pastor’s paycheck and, if they want to donate the funds, then it needs to come from the pastor directly?
DRF—I’m not a tax expert. My first response is … if the check is made out to them, then it is their income from the event. If the check is made out to the church, then they can give the money without any tax consequences.
Let me ask Dan Busby, the President of the Evangelical Council for Financial Accountability to comment on this.
Dan—If a pastor performs services that are outside of the scope of services for which the church is compensating the pastor (funerals, weddings and special speaking presentations outside the church are examples that usually fit this definition) and the pastor is compensated for those services, the pastor has received taxable income reportable on Schedule C (C-EZ).
If the pastor decides to endorse a check for the services provided above and then give the endorsed check to the church, the pastor is not relieved from reporting taxable income on Schedule C (C-EZ). The pastor has merely made a contribution to the church. With the new standard deduction levels that went into effect on January 1, 2018, most pastors will take the standard deduction instead of itemizing. So, if a pastor endorses over a check to the church of $500 (well, at least you can dream about an honoraria of that amount) for, let’s say, performing a wedding, the pastor has $500 of Schedule C (C-EZ) income and no offsetting deduction for the gift to the church. At this point, the pastor has no cash in hand and must come up with federal and state income taxes, plus self-employment social security, perhaps totaling 40%.
Could a church take the endorsed funds and pay the amount to the pastor as part of compensation? Well, yes, but this would amount to a salary increase which should be approved by the governing board.
Could a pastor ask that the endorsed check representing a payment to the pastor for a wedding by considered a gift to a mission account? Yes, it is the pastor’s money and the pastor can use the money for either an unrestricted gift or a restricted (designated) gift.