Tax Tips Webinar: Tax Reform Changes & 2018 Return Filing

Questions & Answers

The following questions were shared live by webinar participants on March 13, 2019. The information provided in response to these questions is for educational purposes only; it is not to be construed as specific tax or legal advice. Consult your own qualified tax adviser or legal counsel regarding your particular situation.

For Active Ministers

 

Does the child tax credit apply to children younger than 18 or 17 in 2018?

The child tax credit is available for children who were younger than 17 in 2018.

A qualifying child is an individual who has not reached age 17 during the taxable year.

Is there a worksheet for the expense deductions from income on Form 1040 – Schedule SE, or do we enter the adjusted amount on Line 2?

Enter the adjusted amount on Line 2.

When determining self-employment tax, on Line 2 subtract the allowable expenses from your self-employment earnings and attach an explanation. See the Tax Guide for Ministers for 2018 Returns, page 40, for an example of an attachment.

Why is the Deason Rule applicable to SECA calculations?

Under the Deason allocation rule, self-employed ministers must reduce their business expense deduction on Schedule C (Form 1040) by the percentage of their total compensation that consists of a tax-exempt housing allowance.

Since no itemized deduction is allowed after 2017 for unreimbursed (or non-accountable reimbursed) employee business expenses, the relevance of the Deason Rule is limited to computing the business expenses reported by self-employed persons on Schedule C (Form 1040).

What is the standard deduction for married filing jointly when both spouses are over 65 years old?

The 2018 standard deduction for married filing joint is $24,000. You can add $1,300 for each spouse age 65 or older (or $2,600).

If you are single and 65 or older you can claim an extra $1,600.

Can 403(b)(9) and 401(k) plans be treated like an IRA?

403(b)(9) and 401(k) plans are employer-sponsored plans, meaning an employer will first need to offer the plan in order for employees to be able to participate in it.

Individual Retirement Accounts (IRAs) are available to anyone (you can contribute to a traditional IRA as long as you are under age 70 ½). You can establish an IRA at a financial institution such as a bank, but a 403(b)(9) or 401(k) must be established by your employer.

Accountable Reimbursements

Are accountable reimbursement policies necessary when clergy file their taxes as self-employed? If so, could you provide an example policy?

Accountable expense reimbursement policies are for clergy who report their business expenses to the church rather than to the IRS. By reporting these expenses to the church, they are acting as an employee.

Self-employed ministers must reduce their business expense deduction on Schedule C (Form 1040) by the percentage of their total compensation that consists of tax-exempt housing allowance (the Deason Allocation Rule). Thus, accountable reimbursement plans are not applicable if you are filing as self-employed.

Does it make any difference if moving expenses were reimbursed through an accountable reimbursement process versus an allowance provided directly by the employer?

The Tax Cuts and Jobs Act repeals both the moving expense deduction for unreimbursed moving expenses and the exclusion of employer reimbursements of moving expenses under an accountable reimbursement plan.

If an employer pays to move an employee (or a church pays to move a pastor), the moving expense will be taxable to the employee/pastor regardless if it was paid through an accountable reimbursement plan or an allowance.

Education

Can you apply the American opportunity tax credit to more than one child’s education?

You can claim the American opportunity tax credit for more than one dependent’s education expenses. The maximum amount of the American opportunity credit you can claim in 2018 is $2,500, multiplied by the number of eligible students. You can claim the full $2,500 for each eligible student for whom you paid at least $4,000 of qualified educational expenses.

Is the American opportunity tax credit just for tuition, or are can we apply it to housing, too?

Qualified expenses under the American opportunity tax credit are tuition, books, supplies, and equipment needed for a course of study as well certain related expenses required for enrollment, such as student activity fees.

The following are not qualified education expenses:

  • room and board
  • insurance
  • medical expenses
  • transportation

For Retired Ministers

If you are retired or disabled, all or part of the Benefits Plan pension, disability, or retirement savings benefits that you received in 2018 may be excludable as housing allowance from your gross income for federal income tax purposes, subject to certain provisions established by federal tax laws. (Surviving covered partners and retired lay employees do not qualify for this exclusion; members should plan for this contingency.)

If you are eligible for an exclusion as defined above and own or rent your home, the tax laws limit the exclusion to the smaller of:

  1. the amount designated in advance by the Board of Pensions as a housing allowance;
  2. the actual amount spent by you for housing-related expenses (housing, utilities, maintenance, repairs); or
  3. the fair rental value of the home, including furnishings and utilities.

If you are eligible for an exclusion and live rent free in a church-owned manse, the IRS limits the exclusion to the smaller of 1 or 2 above.

For further questions, please consult the Tax Guide for Ministers for 2018 Returns, prepared by Richard Hammar, which was mailed to all ministers in the Benefits Plan. Information for retired ministers can be found on pages 45-56 of this guide.