Church taxes

MARY REICHARD, HOST: It’s Thursday, the 5th of July, 2018.

Glad to have you along for today’s edition of The World and Everything in It. Good morning, I’m Mary Reichard.

NICK EICHER, HOST: And I’m Nick Eicher.

Last year, Republicans successfully passed a major overhaul to the U.S. tax code. It provided massive tax cuts to businesses and many employees saw fatter paychecks.

But six months after the law took effect, parts of the law that slipped by people, even lawmakers, are now coming to light. One example is a change to the church tax exemption.

REICHARD: You heard that right: Some churches might soon have to file tax returns. WORLD Radio’s Kristen Flavin has the story.

KRISTEN FLAVIN, REPORTER: The U.S. tax code has always classified churches as nonprofit organizations—meaning they don’t pay taxes. But a small, little-noticed change to the code now requires some churches and nonprofit organizations to begin filing taxes.

The law says churches, religious organizations, and other nonprofits need to begin paying a 21 percent tax on fringe benefits for employees. These fringe benefits include things like free parking and transportation.

Lawmakers say they made the change to level the playing field between nonprofits and for-profits.

CAREY: That line of thinking ignores the very obvious fact that for-profit and nonprofit organizations are different, and they’re not meant to be treated the same way.

Galen Carey is vice president of government relations for the National Association of Evangelicals. It represents 45-thousand local churches.

CAREY: That’s the whole point of having a not-for-profit status is so that they can be treated differently. And then recall as well that in the tax cut bill for-profit businesses received a hefty tax cut. Well, churches didn’t receive any tax cuts because we don’t pay tax.

In addition to the cost of the tax, many churches will incur additional expenses in order to hire accountants or tax advisers to help determine their obligation to the IRS.

Chet Lilly is Chief Operating Officer of PCA Retirement and Benefits Incorporation. He says his organization has been reading through the law and consulting experts so they know how to advise churches searching for answers.

Lilly says churches are baffled as to why Congress would begin imposing taxes.

LILLY: People have asked us: Do we have to do this? Are they after churches? Is this a shot across the bow? We don’t know the motivation for this being put into law other than Congress was looking for revenue.

Carey says the law is also unclear.

CAREY: Every church in America or most churches have a parking lot, does that mean that everyone, every employee who parks in that lot is now receiving a benefit even though the parking lot is generally free to the public?

Lilly says the way he understands the law, it will only apply to churches who have to pay for things like bus tickets or parking expenses employees incur on the job. If that’s the case, very few churches would fit the profile.

LILLY: So for example, a downtown church that’s in a parking deck that it’s a known quantity that parking is $10 or $15 or $20 a day, and they pay either all of it or half of it for the employees, that’s now going to be taxable at 21 percent. It is not a rural church that has a parking lot that everybody parks in.

Since the law went into effect in January, some churches are asking the IRS to waive any penalties or interest charges for late filing.

Churches and their advisers haven’t received regulations or guidelines for how much organizations should expect to pay.

CAREY: What’s for sure is that this is going to become an administrative and accounting nightmare for many churches who have never filed any tax forms because they’ve never been taxed before.

NAE is among the groups urging Congress to amend the law or clarify that the tax on churches and religious non-profits was unintended. Texas Congressman Michael Conaway recently filed legislation to kill the tax, but so far it has no cosponsors.

NAE’s Galen Carey is concerned that many churches may be financially vulnerable.

CAREY: The vast majority of churches probably aren’t even aware that this tax was included, because it wasn’t talked at all in the process of the Tax Cuts and Jobs Act being debated and signed into law. Nobody said, “Oh, and by the way, we’re going to be starting for the first time now starting to tax churches.” So it’s something that was done without very clear public debate, and so I think that’s something that needs to be rectified.

In the meantime, churches have started signing petitions and urging members to call their representatives in Congress.

Reporting for WORLD Radio, I’m Kristen Flavin.

(AP Photo/Susan Walsh, File) In this photo March 22, 2013 file photo, the exterior of the Internal Revenue Service (IRS) building in Washington. 

WORLD Radio transcripts are created on a rush deadline. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of WORLD Radio programming is the audio record.

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2 comments on Church taxes

  1. John Oster says:

    Do you guys have any sources or further reading on this topic? I want to know how my church should be prepared for this coming tax year.

    1. J.C. Derrick says:

      Both the National Association of Evangelicals and the Ethics and Religious Liberty Commission have been publishing info and guidance on this:

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