As noted in an earlier posting, the Religious Policy Commission issued a report to Senator Grassley (R-IA) in December 2012 in which they made recommendations for Congressional and IRS oversight over churches and religious organizations. The following new requirements were recommended for churches. First, the largest churches should participate in a survey of executive compensation so that comparable data can be gathered and reported to the public. Names of churches and staff members would not be identified – only the summary data. Secondly, the IRS should provide guidelines for when it is appropriate for charities to use compensation data from the commercial sector when setting executive compensation.

Many churches hire off duty policemen to assist with traffic control or provide security, and the question normally arises as to whether to treat them as part-time employees or independent contractors. Wages paid to a part-time employee would be subject to tax withholdings, and the individual could become eligible for other employee benefits. On the other hand, payments to an independent contractor are not subject to withholdings, and the person is not eligible for employee benefits. A recent tax court case considered this issue, and in this case, the off duty policemen was considered to be an independent contractor. He was paid by the hour, and the company that hired him did not provide him with any training or control the details of his job. He provided his own uniform and carried his own gun. His pay was reported on Form 1099-MISC, and he was required to report the income as a self-employed independent contractor. For more information about the case see http://www.ustaxcourt.gov/InOpHistoric/Specks.TCM.WPD.pdf

Upheaval is the new norm – Accepting the reality that change is here to stay can actually help you view each new shift as something exciting. Embracing change may be a great catalyst for your church. The use of technology has already been widely adopted, from online giving, to use of the cloud storing financial data, to streaming video or audio online. Social media is also becoming a key method of deploying information from churches, as well as a way for members to get involved and become invitational within their communities. There are also shifts taking place during the traditional Sunday morning services. Many churches are periodically doing large scale service projects or gathering for meals during that time. It might be worthwhile to consider how your church could innovate. Is there uncharted territory that you need to jump into?

The Affordable Care Act (health reform law) mandated rebates from health insurance providers if they did not use at least 80% of premiums to provide health care services. The first of those rebates are due by August 1, 2012. Rebates to church plans exempt from ERISA will be divided equally among all participants and sent directly to them, unless the plan had previously sent a written statement to the insurance company. The church must then use the rebate to reduce premiums for the upcoming year or issue refunds to employees.

The rebates issued directly to plan participants (either from the insurance company or the Church) will generally be taxable to the employees. Since most health plans are deducted from employee wages on a pre-tax basis, the refund is considered taxable. On the other hand, if the Church chooses to reduce premiums for the upcoming year, the employees will simply have a smaller amount deducted from the paycheck. Thus a smaller amount is deducted pre-tax, resulting in an increase to the taxable portion of their wages. For more details on the taxability of the rebates, see the IRS article at http://www.irs.gov/newsroom/article/0,,id=256167,00.html .

For most other (non-church) employers, the rebate will be sent directly to the employer or plan sponsor. Health insurance companies have sent letters to the employer and the employees giving notice of the rebate. The letter encourages employees to contact the employer to find out what is going to happen to the rebate, and whether any will be refunded to the employees. The Department of Labor has issued technical guidance on how and when the rebate should be shared with employees (see at http://www.dol.gov/ebsa/newsroom/tr11-04.html). To the extent the rebate is considered to be a “plan asset”, the employer should use the rebate for the benefit of plan participants by reducing participant premiums, enhancing benefits, or issuing a refund. The rebate is generally a plan asset if the premiums were paid from trust assets. The rebate attributable to participant contributions is also considered a plan asset. On the other hand, if the employer is the policyholder, and the entire premium was paid from the employer’s general account, then the rebate belongs to the employer.