Tax Laws for 2018 & 2019
1. The minimum IRS penalty for filing 60 or more days late is the lesser of $435 (was $215) or 100% of tax due, starting 2019.
2. The penalty for not having health insurance is eliminated starting in 2019.
3. Dependents with over $2,100 of investment income, taxable scholarships, and other ‘unearned income’ may pay much less tax than in 2018, starting in 2020, but with the option to start retroactively in 2018 or 2019.
4. Alimony is not deductible by the payer nor taxable to the recipient for post-2018 divorces.
5. Tax-free 529 Plan distributions are allowed for and registered apprenticeships and up to $10,000 of certain student loan repayments toward principal or interest of the designated beneficiary or their sibling, starting in 2019.
6. If you filed a new W-4 Form for 2020, check your pay stub carefully for unintended swings in tax withholding. Starting in 2020, newly designed W-4 Forms use very different formulas than in the past.
7. Traditional IRA contributions are allowed even for workers who are over age 70½, starting for 2020.
8. The age for taking Required Minimum Distributions (RMDs) from IRAs and other retirement accounts is increased to 72 (was 70½) for those turning 70½ after 12/31/19. Employees working past age 72 can wait until they retire to take RMDs from the current employer’s retirement plan. Note: QCDs (see Tip #2 below) are still allowed starting at age 70 ½.
9. Those having a baby or adopting can take up to $5,000 (per spouse) from IRAs or certain other retirement accounts without paying the 10% IRS penalty, though the withdrawal is taxable. This starts in 2020.
10. IRAs and retirement accounts inherited after 12/31/19 generally must be completely withdrawn within 10 years. Exceptions: Surviving spouse, minor children, disabled or chronically ill, anyone less than 10 years younger than the deceased.
(G) 529 Plan distributions can now be used for tuition at elementary or secondary public, private or religious schools, up to $10,000 per student.
Key Tax Strategy:
Because employee un-reimbursed job expenses cannot be claimed on your tax return (except for ministers’ Social Security Tax calculations), have your employer reimburse all job expenses. Here’s why we recommend that you look into an accountable plan.
1. Using a properly set up accountable plan provides a tax-free fringe benefit with state, federal and Social Security tax reduction for the minister.
This is about the only way, excluding a clergy 403(b) retirement plan, to get a reduction in Social Security tax. For ministers’ in Social Security, that can mean a 15% savings even if you pay no state or Federal tax right now.
2. It doesn’t cost the church or you anything extra. It usually just requires a restructure of your pay package and designates part of what you already spend on expenses as ministry COSTS. Implementing a proper accountable plan will often increase ministers take home pay because they don’t have to pay unnecessary tax on the part of their salary that they’re spending to do their job. It differentiates the ministers’ salary from the churches cost of running a ministry, and can channel more resources into growth instead of after tax dollars.
3. It takes a one-time agreement (unlike housing designations) to implement and then it just goes on until you need to change or adjust it. We can even supply free forms and sample documents with step by step instructions so you know what to deduct, how much and when. You’ll find a whole list of other legitimate expenses beyond the usual computer/technology and car expenses that most people think of as business-related here.
4. These plans are designed by congress to apply to all employees, not just ministers. This is the way congress intends and encourages you to account for ministry expenses. It’s good business and stewardship.
5. Step by step instructions in our “How to Set Up an Accountable plan” video with a downloadable guide and sample documents are available with the video instructions. Now, you and your treasurer can understand how easy an accountable plan is and why it’s the best way to handle ministry expenses.