MISSOURI CONFERENCE OF THE UNITED METHODIST CHURCH

Instructions: 2016 Pastoral Support Form

The purpose of this document is to help give direction to the Pastor-Parish Relations Committee, Pastor, Church/Charge Conference, and Church Treasurer in establishing and reporting the Pastoral Support within the parameters that have been established by the Internal Revenue Service [IRS].

The Pastoral Support Form is a very important document. Information reported on this form is used for several purposes: · Setting Pastoral Compensation for the local church

· Reporting Compensation to the General Board of Pensions

· Reporting Compensation to the Internal Revenue Service

· Reporting Compensation to the Cabinet

INSTRUCTIONS

Line 1, Cash Salary Paid to Pastor. Report the actual "cash" salary to be paid to the pastor.

Line 2, Other. To be used as needed at the direction of the District Superintendent.

Line 3, Pastor's Personal Contribution to Pensions (After-Tax) (From the "Monthly Billing Statement" of the General Board of Pensions.)

Through the General Board of Pension & Health Benefits, local churches make contributions to the Clergy Retirement Security Program (CRSP) on behalf of the clergy serving in those churches half-time or more. This contribution (for clergy serving half-time or more) is billed by and paid to the Conference Treasurer's Office (see Line 15a of this form). CRSP is divided into two parts: a defined benefit (DB) plan in which contributions are invested on behalf of all UMC pastors and paid out in "pension-like" payments upon retirement AND a defined contribution (DC) plan in which invested contributions are managed by each pastor and paid out in methods chosen by the pastor. Churches and pastors might think of DB as a true "pension plan" and DC as a 401(k) or 403(b). In addition to contributions made by the local church on behalf of each pastor, the General Board, the Annual Conference and General Conference encourage pastors to share responsibility for their retirement savings through PERSONAL CONTRIBUTIONS. Personal contributions are made through a program called United Methodist Personal Investment Program (UMPIP).

All clergy serving half-time or more, and who participate in the General Board of Pensions plans (i.e. CRSP DC & DB), must contribute at least 1% of their compensation to their UMPIP account in order to receive a 1% match to their contribution. Without contributing to UMPIP and receiving the match, pastors will receive less contribution to their CRSP-DC portion of pensions.

Line 3 indicates how much of a contribution to UMPIP the pastor will personally take out of his/her cash support AFTER taxes are withheld from that amount. By having the contribution taken after taxes, the pastor will receive tax free payments upon retirement tax. Whatever amount is indicated on Line 3 will be withheld from the pastor's paycheck, but included as income reported on the pastor's W-2. If a local church desires to pay a "personal contribution" on behalf of a pastor and does not withhold the contribution from the paycheck, the amount should still be indicated in Line 3 with an equivalent amount added to Line 1 because the contribution is still considered part of "Cash Salary."

NOTE: While pastors serving less than half-time are NOT eligible for enrollment in CRSP, they can personally contribute some of their salary to pension savings through UMPIP.

In order to begin contributions to UMPIP, whether Before or After Tax, all pastors and local churches must complete the “Before-Tax and After-Tax Contribution Agreement” (UMPIP) which can be found on the conference website in the list of charge conference forms. Return the original signed form with all church conference paperwork (keeping a copy with the local church and pastor). Questions can be directed to Trudy McManus, Clergy Relations Coordinator in the Missouri Conference Center, 1-877-736-1806.

Line 4, Funds designated to cover Social Security. For Social Security purposes, your pastor is considered "self-employed." As such the local church is to make no employer's contribution to the pastor's social security. The pastor, however, must pay SECA (or self-employment tax) on compensation (currently 15.3%); compensation includes the housing allowance or fair rental value of a parsonage. This means that when filing Federal Income taxes, the pastor must pay an additional 15.3% tax on top of the Federal Income tax. Churches may decide to help offset the cost of this tax rate. If so, any such amounts must be reported on Line 4 AND reported as taxable cash compensation on the pastor's W-2 and Federal Income tax return.

Line 5, Personal share, if any, of other insurance. Use this line to report personal share of any other insurance paid on behalf of the pastor.

NOTE: The total of lines 1 through 5 is taxable income reportable to the IRS at the end of the year on a W2 form.

Line 6, Tax Deferred Pensions. For a description of UMPIP, see the instructions for Line 3 above. A pastor may decide to defer Federal income tax on amounts contributed to UMPIP. In other words, the pastor might chose to contribute to UMPIP and make the contribution BEFORE the amount is included as taxable income. If so, no tax is paid upon the contribution when it is earned. Rather taxes are paid when amounts are withdrawn during retirement. A contribution indicated on Line 6 will be withheld from the pastor's paycheck, but the amount will NOT be reported as taxable income on the W-2. Rather, the amount will show in a separate box and be treated as non-taxed contributions to the UMPIP retirement plan.

As with amounts on like 3, complete the “Before-Tax and After-Tax Contribution Agreement” (UMPIP) which can be obtained from the conference office.

Line 7, Other 403b Pensions. It is possible for pastors to contribute to other retirement plans as part of his or her retirement savings. The IRS allows tax deferred contributions to be made by clergy (as well as educators and other nonprofit workers) to these plans under Section 403(b) of the IRS Code. As such, 403(b) plans operate much like 401(k) plans in the business world. In Line 7, a pastor and local church may chose to make additional contributions to a 403(b) plan through an investment representative or tax consultant. In order to contribute, any such plans must qualify under terms defined by the IRS.

Line 8, Furnishings Allowance. The IRS allows pastors to exclude compensation received for housing from income for the purposes of calculating income tax. However, such compensation is included for purposes of calculating self-employment tax under SECA. Compensation for housing may include a parsonage, allowance (or direct payment) for utilities, allowances for furnishings, and/or an allowance for all housing costs. Typically in United Methodist Churches, a pastor is given either a parsonage OR a housing allowance together with reimbursement or an allowance for utilities (see Lines 10 and 11 below). Utilities and housing allowances are typically given in addition to the cash salary designated in Line 1. However, if a pastor receives an unfurnished parsonage, the pastor might also designate a portion of cash salary as a "furnishings allowance." On our Pastoral Support Form, the Furnishings Allowance is not received as additional money, but is rather a designation of cash already received. By doing this, the Furnishings Allowance is NOT included in taxable income reported on the W-2, and the pastor does not have to count it as income. The amount IS, however, included in the calculation of income for figuring self-employment tax. The IRS limits compensation received for housing to the lowest of: (a) the amount actually designated for housing by the church (i.e. the combination of Lines 8, 10, 11) on the pastoral support form); (b) the fair rental value of the parsonage, FULLY FURNISHED (a determination made by the facts and circumstances of the surrounding community); or (c) the amount actually substantiated by the pastor with receipts. In the case of the furnishings allowance, a pastor would determine the limit by first estimating the fair rental value of the parsonage as fully furnished, then subtracting the value of the parsonage as unfurnished. Because these are facts and circumstance determinations, the pastor and church should follow a "reasonableness" test. Likewise, if the pastor receives a parsonage and designates a furnishings allowance, he/she MUST retain receipts for the items purchased in that year. The receipts are not filed with tax returns, but would become critical in the event of an audit. If a pastor does not use or cannot substantiate the entire amount designated as Furnishings Allowance for furnishings, he or she simply includes the remaining amount as "Other income" when filing an IRS 1040. The "Furnishings Allowance" should be included in a motion adopted by the Church Council or Charge Conference at the beginning of the year in which it is to be used.

Line 9a, Healthflex Exchange Plan Beginning in January, 2016, full time clergy will participate in Healthflex Exchange, a private health insurance exchange. Through Healthflex Exchange, full-time clergy must select from one of five health insurance plans. Clergy will make this selection in late October and early November (the annual enrollment period) through a website administered by the General Board of Pension & Health Benefits. Clergy should mark the box of the same plan selected during open enrollment. The premium for individual coverage will be paid for by the local church through a "defined contribution" to the Conference. This amount is indicated on Line 14) of the PSF. The defined contribution will be the same regardless of what plan is selected. Except with respect to the B1000, the premium of which is covered by the defined contribution with nothing remaining, any excess of defined contribution over the premium will be placed in the accompanying HRA or HSA, as the case may be. The available plans are as follows:

B1000 Traditional Plan (No HRA/HSA Available) Gold

C2000 Consumer Driven Plan (Accompanying HRA) Gold

C3000 Consumer Drive Plan (Accompanying HRA) Silver

H1500 High Deductible Plan (Accompanying HSA) Gold

H2000 High Deductible Plan (Accompanying HSA) Silver

Note: Dependent and family coverage will occur through the same plan as that selected by the individual clergy. Except with respect to clergy couples covered as two individuals, plans may not vary within a family.

Line 9b, Healthflex Dependent Premium Currently, the Conference direct bills local churches to pay for the Health insurance defined contribution charged by Healthflex Exchange for individual pastors (see Line 14). Pastors may also purchase HealthFlex dependent health insurance on a "before tax basis." In other words, the amount spent for Health insurance to cover dependents is excluded from income for purposes of calculating income tax. To do this, the Pastor must enter into a salary reduction agreement with the local church for the amount of the premium. “Dependent Health Insurance Premium Salary Reduction Agreement” forms are available on the conference website in the list of charge conference forms. Return the signed original form with all other charge conference paperwork (keeping a copy for the local church/pastor). Dependents will be covered on the same plan selected by the individual clergy. Premiums vary by plan with the amounts available from the conference or district offices. Before pursuing Healthflex coverage for dependents, Pastors should carefully consider the impact of new health insurance exchanges and the Patient Protection and Affordable Care Act (i.e. Healthcare Reform) on their decision. The dependent and family premiums for each plan available through Healthflex Exchange are listed at the end of these instructions.

Line 9c, Medical Reimbursement Reduction. (Section 125 Approved Plan). Pastors covered by the B1000 Traditional Plan offered through Healthflex Exchange may participate in an IRS "Section 125 Approved Plan" administered through Healthflex by WageWorks. Information is available from HealthFlex or Trudy McManus () at the Conference Office. This allows a pastor to have his or her paycheck reduced by a certain amount (now limited to $2,500 annually). The Pastor will then receive a "debit card" from WageWorks (or such provider as selected by the General Board of Pensions & Health Benefits). Bills must be substantiated with receipts, but the debit card allows the Pastor to automatically pay expenses, up to the amount designated, without paper filing. The designated amount is then excluded from income for the purposes of calculating income tax. Using a Medical Reduction allows the Pastor to reduce income tax liability, BUT all amounts deducted are lost if not fully used. Pastors must elect the Medical Reduction amount during the HealthFlex open enrollment period in early November.

Line 9d, HSA Contribution Pastors selecting either the H1500 or H2000 High Deductible Plans offered through Healthflex Exchange may participate in an accompanying Health Savings Account (HSA). Unlike a Section 125 plan, money contributed to an HSA rolls over each year it is not used. Contributions are placed in an interest bearing account. All amounts in an HSA are also portable in the event the clergyperson retires or leaves ministry. Some contribution to the HSA is made on the clergyperson's behalf by the local church and conference. In addition, pastors may contribute additional amounts up to a cap set by the IRS ($3,350 for individuals; $6,750 for families). These caps include amounts contributed to the HSA on behalf of the clergyperson by the Conference.