Pastors and Parish Bookkeepers/Annual Calendar Year-End Memo
MEMORANDUM
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DATE:December 12, 2016
TO:Pastors, Fiscal Managers, and/or Parish Bookkeepers
FROM:Anne Marie King, Controller
RE:Calendar Year-End Procedures:
Priests’ Self-Employment Benefit
Priests’ Housing
Paycor Payroll Service (also refer to communication from HR/Payroll)
Other Federal Tax Forms
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PRIESTS’ SELF-EMPLOYMENT BENEFIT
The annual diocesan priests’ self-employment benefit amount is 50% of their reported Self-Employment Tax for 2016. This amountcan be found on their completed Schedule SE tax form in either the short-or long-formschedule, depending on which was used to do their tax return. The line for Self-Employment tax on page 2 of the priest’s Form 1040 can also be used but will need to be divided by two since it represents the total tax. Please do not pay the benefit until a signed copy of either the filed Form 1040 or Schedule SE has been provided by the priest. This is a taxable benefit that must be included in reported earnings, so disburse the amount as a one-timepayroll check.
This benefit only applies to diocesan priests assigned to your parish during 2016 who are participating in Social Security. It does not apply to Order priests or diocesan priests who have opted out of social security. If the qualifying priest was assigned to your parish for part of the year, then a pro-rated portion is paid based on the months of service at the parish.
PRIESTS’ HOUSING
The value of housing provided to priests assigned to the parish is an income tax-free benefit. However, in the case of priests receiving a Form W-2 or 1099-MISC, it is subject to the Self-Employment Tax and must be added to other earnings from self-employment when they do their taxes. Please provide a memo explaining the amount and what to do with it to each priest who will receive a W-2 and has been provided housing. A sample memo is providedat the end ofthis section. Also, the value of housing needs to be computed based on one of two possible situations:
1. For parish-owned rectories, the value is the fair market value of what a “boarder” would pay under similar circumstances; taking into consideration the actual portion of the rectory that is for personal use. An amount of $300 per month, for instance, in the case of many of the rural parishes may be too high but too low for some of the metropolitan parishes. This should be evaluated to determine a reasonable estimate.
2. When a priest owns or rents a home or apartment, the parish should pay him an income tax-free allowance to cover his actual housing costs. This can include mortgage or rent payments, utilities, insurance, repairs and furnishings. The parish must officially designate the amount of the allowance in advance. The value to report would be the total allowance issued during the calendar year.
This does not pertain to Order priests or priests who are not assigned to the parish. The parish should not include the value of housing on a priest’s tax form.
SAMPLEMEMO
Date:1/4/17
To:Father ______
From:Parish Bookkeeper
Subject:2016 Value of Housing
The value of housing provided to you for 2016 was $______. Be sure to include this amount with your 2016 self-employment earnings. It is not included in your W-2 because it is not subject to income tax. It is, however, subject to the Self-Employment Tax. Be sure to keep this for your records and to present it to your tax preparer.
HUMAN RESOURCES / PAYROLL
Review the Year-End Processing Information Packetfrom the Human Resources/Payroll Dept. as soon as possible. There are important deadlines that need to be met that should be put on your calendar.
Some payroll items to be aware of:
1. Mass offerings/stipends and stole fees paid to priests assigned to the parish are taxable earnings and should have been paid through payroll. If this was not done during the year, compute the total paid for each priest for the year and enter it into Paycor on the last payroll of December as an adjustment. Please contact Lisa Nanez in Payroll for assistance. You do not need to issue a W-2 to priests not assigned to your parish who were paid mass offerings and/or a stipend for substituting at your parish. Use a 1099-MISC for these priests who earned $600 or more for the calendar year and were paid directly (not necessary if paid to an Order). To expedite preparing a 1099-MISC for these clergy, ensure you have their Social Security Number and mailing address on file.
2. Priest’s Self-Employment benefit payment should also have been run through payroll. If it was not, this needs to be entered as an adjustment as well.
3. Non-housing allowances for food, education, travel, etc. that were not substantiated are considered taxable earnings and need to be run through payroll. “Not substantiated” means receipts were not provided to verify the proper use of the funds.
4. Compensation paid to religious orders of priests and sisters should be paid through Paycor as 1099-MISC employees. This will provide a complete picture of your staffing for workers’ compensation/industrial insurance purposes.
5. Employee Christmas bonuses are considered taxable earnings and need to be run through payroll. Only Social Security and Medicare need to be withheld for these. If a $50 bonus is needed, to calculate the gross earnings divide $50 by .9235 = $54.14, and $4.14is the Social Security/Medicare that will be deducted.
6. The official policy of the Diocese is that Deacons are not paid for performing that role within a parish. They can be paid if they are employed in a position that is normally filled by a lay employee. This means that all Deacon earnings are subject to Social Security and Medicare withholding and entitled to the employer match. Also, Deacons should not receive a housing allowance or have a portion of their compensation designated as housing allowance.
7. For employees with the Group-Term Life Insurance, the cost in excess of $50,000 coverage must be included in gross earnings. For more information on GTL, refer to IRS Publication 15B, Group-Term Life Insurance Coverage.
Forms 1099-MISC and 1096
All independent contractors paid by the parish that have earned $600 or more during the year and who do not meet the common law tests for an employer/employee relationship must receive IRS Form 1099-MISC by January 31, 2017. Form W-9, Request for Taxpayer Identification, must be on file for all independent contractors. All vendors who are individuals, sole proprietors, or partnerships (not corporations) that perform a service normally associated with a salaried employee (i.e., computer consultants, outside accountants, attorneys, building contractors, etc.) must receive a 1099-MISC. A summary of all 1099-MISC information is required to be transmitted using Form 1096 to U.S. Treasury by February 28, 2017. A copy of the federal forms is sufficient for Arizona.
Form 1098-C: Contributions of Motor Vehicles, Boats and Airplanes
If the parish accepted a vehicle donation during the past year, be sure to review the instructions for IRS Form 1098-C. The following is a quote from the instructions:
“A donee organization must file a separate Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, with the IRS for each contribution of a qualified vehicle that has a claimed value of more than $500. A qualified vehicle is any motor vehicle manufactured primarily for use on public streets, roads, and highways; a boat; or an airplane.”
Forms W-4
For those employees who claimed EXEMPT on their Form W-4, this status will expire on February 15, 2017,. You need to secure a new Form W-4, Employee Withholding Allowance Certificate, from all employees who claimed a total exemption from withholding during 2016. A new Form W-4 must be received and processed by February 15, 2017 for the exemption to remain in effect. If the updated W-4 is not received within the designated timeframe, begin withholding at the single/zero withholding allowance rates.
For further information, please refer to the following:
- IRS Publication 393, Federal Employment Tax Forms
- IRS Publication 15, Circular E / Publication 15A / Publication 15B
- IRS Forms & Publications by Phone 800-829-3676
- Arizona Withholding Payment and Reporting Instructions
oDiocesan Human Resources/Payroll or Fiscal staff
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