Instructions: 2015 Pastoral Support Form

MISSOURI CONFERENCE OF THE UNITED METHODIST CHURCH Instructions: 2015 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 16 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).

Beginning January 1, 2014 all clergy serving at 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 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 payments upon retirement tax free. Income taxes are paid on the contribution when it is earned as compensation. 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 these contributions, 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

1 (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 W-2 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 upon withdrawal upon retirement, similar to contributions to a traditional IRA. 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.

The same form agreements required by Line 3 are required for contributions to be withheld in Line 6. 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 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 11 & 12 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, 11 & 12 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 2 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, Medical Reduction. (Section 125 Approved Plan). Pastors covered by the conference health insurance program “Healthflex” may participate in an IRS "Section 125 Approved Plan" administered through Healthflex by WageWorks. Information is available from HealthFlex or Trudy McManus ([email protected]) 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 9b, Dependent Care Reduction. (Section 125 Approved Plan). Pastors covered by the conference health insurance program “Healthflex” may also participate in a "Section 125 Approved Plan" for dependent care expenses. This plan is also administered through Healthflex by WageWorks. In this case, Pastors with eligible dependents (typically children) may have an amount reduced from their paycheck. He or she may then submit receipts to Ceridian for any amounts spent on care and receive reimbursement up to the amounts already deducted. WageWorks will require a taxpayer id (either an Employer ID number or Social Security Number) and a written receipt from the provider in order to reimburse the Pastor for amounts spent. Information is available from HealthFlex or Trudy McManus at the Conference Office. Pastors must elect the Dependent Care Reduction amount during the HealthFlex open enrollment period in early November.

Line 10, HealthFlex Dependent Health Insurance Premium. Currently, the Conference direct bills local churches to pay for the Health insurance premiums charged by Healthflex for individual pastors (see Line 15). 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). 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.

Line 11, Parsonage or Housing Allowance. As noted in the instructions to Line 8, the IRS allows Pastors to exclude compensation received for "housing" from income. In Line 11, check if parsonage is provided or if the Pastor is receiving a housing allowance. If a housing allowance is provided, please also enter the amount. The housing allowance is used only in those instances where a parsonage is not available for the pastor. If the church provides neither a parsonage nor a housing allowance, please check "neither". According to Internal Revenue Service rules, only ordained clergy and local pastors may receive the use of a parsonage or a housing allowance as tax-exempt compensation. It is recommended that housing allowances should not exceed 25% of the pastor's total salary (Line A on 2015 Pastoral Support Form). Likewise, as stated in Line 8, the total housing compensation excluded from income tax is limited by (a) the total amount designated (housing, furnishings & utilities combined) as such by the local church; (b) the fair rental value of the pastor's home (whether parsonage, owned or rented) as FULLY FURNISHED; or (c) the amount actually substantiated by the pastor. A housing allowance may be used for any housing related costs, as long as the pastor can show a direct connection between the amount and his or her need for housing. Thus, the housing allowance can be used to pay a mortgage, rent, maintenance, furnishings, 3 renovations, lawn care, snow removal or even cleaning services. The amount of allowance is included in the pastor's paycheck, but will be excluded from income for calculating income tax.

NOTE: However, the pastor IS responsible for paying self-employment or SECA (Social Security and Medicare) Tax on the amount of housing allowance OR the fair market rental value of the parsonage with utilities provided. This means that any increase in housing allowance will reflect an increase in the amount of self-employment tax.

Line 12, Utilities & Service Costs. Being housing related, utilities are not reported to the IRS on a W-2. It is strongly recommended that utilities be paid directly by the church or reimbursed to pastor upon proper documentation. Utilities may include gas, electricity, water, sewer service, basic telephone plus church-related long distance charges, trash service, and basic cable TV. If a utility allowance is used, the pastor is responsible for the payment of all utility bills. If the pastor receives a utility allowance, it is the pastor's responsibility to keep track of expenses and to declare any unused portion of the allowance as "other income" on IRS Form 1040.

Line 13 and 14, Travel & Professional Expenses/Continuing Education. Typically, the IRS allows United Methodist Pastors serving local churches to deduct unreimbursed business expenses from income when filing his/her Federal tax returns. However, churches may elect to reimburse the pastor for these sorts of expenses, in which case the reimbursement received by the pastor is entirely excluded from income. However, in order for such reimbursements to qualify for this exclusion, the amounts should be established as part of an "Accountable Reimbursement Plan." The pastor and PPR/Church Council should negotiate what is to be reimbursed and determine a maximum amount to be reimbursed. (Examples of reimbursable items include church-related business mileage at the IRS established rate, annual conference expense, continuing education expense, books and periodicals, Internet expense, and other reasonable kinds of business expense like vestments or media used in the course of work as a pastor.) The amounts budgeted for these items are proposed and adopted by the Charge/Church Conference and entered into Lines 13 & 14. The amount is to be broken down into "Travel & Professional Expenses" and "Continuing Education" for United Methodist purposes. The IRS will treat them in the same way regardless of designation. In order to qualify for the exclusion from income, the pastor must keep appropriate records including receipts, invoices and/or a mileage log. Copies must be submitted on a timely basis for reimbursement. If the pastor does not use all of the funds budgeted, the pastor DOES NOT receive the unused funds. The amount set by the Charge/Church Conference is a ceiling for the year. The ceiling can only be changed by making arrangements with the District Superintendent and through further Charge/ Church Conference action. If reimbursements are not handled properly, they will become taxable as income to the Pastor.

Line 15, HealthFlex Premium. This is the premium for full-time Pastor’s portion of the HealthFlex premium which will be billed by and payable to the Annual Conference by the local church. If a pastor chooses to purchase dependent health care insurance through HealthFlex, the premium amount will be put on Line 10. For part-time pastors, if the church pays for personal and/or dependent health insurance from another source, the amount will be included in line 5, Cash Salary. The premium for the Pastor is established at Annual Conference and is listed on page 5 of this document.

Line 16 refers to pension contributions by a church on behalf of their pastor. A pension contribution is in addition to all salary/minimum salary support.

Line 16A, CRSP. CRSP (Clergy Retirement Security Program) is the current pension plan ONLY for pastors serving half-time or more. CRSP will be billed by and paid to the Conference Treasurer’s Office. Further explanation of CRSP is provided in the Instructions to Line 3. This line indicates the amount billed to the local church by the Annual Conference and ultimately contributed to the General Board of Pension & Health Benefits. CRSP is currently 12.22% of the PASTOR’S COMPENSATION. A worksheet is provided to calculate CRSP for purposes of Line 16A.

Line 16B, UMPIP. Any church may make additional contributions to UMPIP on a pastor's behalf. Additionally, since clergy serving less than half-time are NOT eligible to participate in CRSP (the General Board pension plan, by General Conference action beginning January 1, 2014), a local church may continue to contribute to their pastor’s pension through UMPIP. By Annual Conference action, the Missouri Conference’s Clergy Support 4 Team strongly recommends a local church (with a less than half-time pastor) continue to contribute to their pastor’s pension by contributing 8% of the pastor’s total compensation to the pastor’s UMPIP account. If a clergy serves less than quarter-time, the Missouri Conference’s Clergy Support Team strongly recommends a local church make a 3% contribution to the pastor’s UMPIP account. A worksheet is provided to assist in these calculations. UMPIP contributions, paid for by the local church, will be recorded as before-tax contributions.

Line 17, CPP. CPP (Comprehensive Protection Plan) provides death, long-term disability and other welfare benefits for full-time Pastors. CPP is also administered through the General Board of Pension & Health Benefits and is billed to local churches by the Annual Conference.

CPP is 3% of the PASTOR’S COMPENSATION. Use the same worksheet used in Line 16 to calculate CPP. ◊ ◊ ◊ ◊ ◊ PASTORAL COMPENSATION INFORMATION

The PASTOR’S COMPENSATION includes the TOTAL SALARY from Section A, plus the housing component. If the pastor lives in a church provided parsonage, the housing component is set at 25% of the Total Salary for purposes of calculating CRSP and CPP. If the pastor receives a housing allowance, the housing component is the housing allowance including utilities.

Minimum Base Salary (Line A of the Pastoral Support Form) Following is the minimum salary support information for 2015 as approved at the 2014 Annual Conference session. [Note: this is not the chart used for calculating pension benefits. That calculation will be made using the Pastor’s Compensation as defined above.]

2015 Full- 3/4 1/2 1/4 time time time time Full Member $37,772 $28,329 $18,886 $9,443 Provisional/Associate Member $37,322 $27,992 $18,661 $9,331 Local Pastor $36,522 $27,392 $18,261 $9,131

It was also recommended that the total allotted for travel, utilities, continuing education and professional expenses for all full-time clergy be a minimum of $7,000 per year.

Health Insurance Following are the health insurance rates for full-time clergy and dependents.

HEALTH INSURANCE 2015

Clergy or Lay Employee $8,760 plus One Dependent (spouse or child) $7,836 plus Family (multiple dependents) $12,360