The IRS has begun to release guidance on the tax legislation signed into law December 22, 2017, which largely took effect January 1, 2018. The law did not require changes to the Benefits Plan or its core benefits, and the favorable tax treatment and contribution limits for retirement savings accounts were unchanged, as were the rules for Health Savings Accounts.
Following is an overview of several tax changes that might affect Presbyterian Church (U.S.A.) congregations, agencies, and PC(USA)-affiliated employers and their pastors and employees. Employers and individuals should consult their tax and/or financial advisers for guidance.
Adjusted Withholding Tables
The IRS has released the adjusted 2018 withholding tables. Churches and other employers should start using them by February 15, 2018. The tables are designed to work with W-4 forms already on file, so taxpayers do not need to revise their W-4s.
Ministers' Estimated Taxes
Ministers of the Word and Sacrament who have not elected voluntary withholding, and so do not have a W-4 on file, should review their estimated tax liability, as calculated on Form 1040-ES, to see if they should adjust their quarterly payments based on the new tax law, including
- a change in tax brackets;
- an increase in the standard deduction;
- the elimination of personal exemptions;
- the change to the child/family tax credit;
- a cap on deductions for state and local real estate taxes of $10,000; and
- the elimination of state and local income and sales tax deductions.
Key Eliminated Tax Benefits
Employer and employee tax benefits that changed as of January 1, 2018, include the following:
- The qualified bicycle commuting reimbursement, which allowed an employer to provide up to $20 a month tax-free to an employee for bicycle commuting, was eliminated.
- The qualified transportation fringe benefits are now subject to unrelated business income taxes (UBI) if a tax-exempt employer pays the costs. (Employees can still pay mass transit or workplace parking costs with pretax income through an employer-sponsored salary reduction program.)
- The employer deduction for the expense of client entertaining was eliminated. (Employers can still deduct 50 percent of the costs of meals for employees on work travel.)
- The employer deduction for, and the employee exclusion from income of, reimbursement for moving expenses and the employee deduction for such expenses were eliminated.
529 Education Plans
Earnings on 529 plan accounts are not subject to federal tax and, generally, not to state tax when used for qualified education expenses. Previously, qualified education expenses were college and other post-secondary training costs. As of January 1, 2018, k-12 tuition at public, private, and religious schools and some home school costs are considered qualified education expenses.
The law restricts distributions for k-12 tuition and home school costs to $10,000 per student, per year; that is $10,000 per student, not per 529 account. Tax treatment of these distributions might vary at the state level, so individuals should consult a tax adviser.
Further information on tax law changes is available through the IRS resources page. The Board continues to monitor IRS guidance and update its resources on pensions.org. Fidelity Investments, record keeper for the Retirement Savings Plan of the Presbyterian Church (U.S.A.) (RSP), is informing RSP participants of updates through email and when they log on to Fidelity NetBenefits.
The Federal Reporting Requirements for Churches: What You Need To Know for 2018 is now available through Benefits Connect, along with the Tax Guide for Ministers for 2017 Returns. Benefits Plan members and employers log onto Benefits Connect and find links to the guides in Quick Links, in the right-hand column of their home page.