Church Finance & Administration

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a. The Why – Vision and mission should drive the budgeting process for the church. Monies not aligned with the church’s desire to move will not accomplish desired movement. Similarly, monies will be wasted when the dollars are planned to be
intentional, but where there is no vision for the church.

b. A Teaching tool – The budget should be a teaching tool to help the church see how the dollars of ministry are driving the future health of the church. A routine report that compares income and expense budgets should be shared with the church. This reporting will help people see and track what the church body has covenanted together to do.

c. Healthy Budget Percentages

i. 30% Ministry/Missions, 40% Salaries/Benefits, & 30% Buildings/Maint./Operations
ii. 33/33/33 33% allocated to three main budget categories: Missions & Ministry, building and infrastructure, and salaries & benefits
iii. According to ChurchSalary, as of 2022, the average church budget for payroll and benefits is 49.1%.

Churches should have the following reporting at a minimum.

a. Budget vs. Actuals Report – This report compares anticipated income and expenses and compares them to the actuals over a certain period of time. Reviewing this report will allow you to understand where the church is related to income received and expenses made.
 

b. Statement of Financial Position Report (Also known as a Balance Sheet) – This reports all assets, liabilities, and the equities of the church. The report shall include items such bank account balances, petty cash funds, investment accounts, fixed assets (fixtures & Property), pending credit card expenses, designated accounts, retained earnings, and net income
   

c. Restricted/Designated Accounts Report – This report displays all accounts that have been created with either a church restriction or donor restriction. The funds help ensure accountability in the accounting system related to the designations placed on funds. This report will give a snapshot of funds available at the time the report is published.

a. Fund Accounting – This is the accounting process by which a church sorts and reports how income is received and spent, including restrictions that have been placed on donations.

b. Unrestricted – These are funds that are given freely to the church and are used at the sole discretion of the church. These are usually referred to as Tithes and Offerings.

c. Temporarily Restricted -This breaks down into 2 separate buckets:

i. Donor Restricted – These are funds that are given to the church by a donor and that donor has placed a restriction on how the funds can be used. The church must use the funds for the given purpose or return them to the donor. This could be funding for things such as:

1. Building Fund,
2. Benevolence,
3. Mission Trips,
4. Giving towards specific ministry items, etc.

ii. Church Designated – These are funds created by the church with money the church had on hand and originally was given as Unrestricted without any donor restrictions, or through other revenue streams like interest earnings. This could include items such as the church setting aside monies for:

1. A Reserve Fund,
2. Deferred Maintenance Needs,
3. Special upcoming projects, etc.

d. Permanently Restricted – These are funds given to the church in which the interest returns on the corpus of funds is to be used for the donor’s restriction but the corpus itself cannot be touched or used. This creates a perpetual source of income for the donor’s intended purpose.

This is the process of comparing the church’s bank transactions to the church’s financial records to ensure that all income and expenses have been accounted for and any outstanding transactions are noted. Reconciliations should be done in a timely manner and, if possible, include two people in the reconciliation process for accountability. This is also one of the church’s best processes to safeguard against embezzlement.

a. Love offerings given through the church are taxable and should be reported as such.

b. Sabbatical trips or funding given through the church are taxable and should be reported as such.

c. Christmas and Pastor appreciation gifts given through the church are taxable and should be reported as such.

d. Benevolence gifts to persons employed by a church are considered taxable income. [The only way that these items are not taxable is if all gifts are collected by an individual and that individual gives a gift to the pastor. However, if taken to court, this may not hold up as it could be considered remuneration for duties performed as the pastor.]

e. Below market rate loans of more than $10,000 to church staff. The difference between the actual interest paid and the Applicable Federal Rate is considered additional compensation and must be reported as taxable wages.

f. Forgiven loans to any employee of any amount of the loan principal is forgiven, that amount will also be taxable income to the employee.

a. Why does a church need savings? The church needs savings to prepare for unexpected emergencies, manage fluctuations in income, and ensure the continuity of operations

b. Why does a church need reserves? In addition to savings, a church should have 3-6 months’ worth of expenses saved in a reserve fund.

c. Savings & Investment options

i. WatersEdge
ii. Ministry Trust
iii. GuideStone
iv. Southern Baptist Foundation

a. WatersEdge (BRN Preferred lender) – https://www.watersedge.com/church-loans/

b. BCLC Church Lending - https://www.bclcchurchlending.org/

a. Servicing Companies

i. WatersEdge (BRN Preferred) - https://www.watersedge.com/ministry-accounting/
ii. Innovative Faith Solutions - https://www.innovativefaith.org/church-financial-management/

b. Software Options

i. QuickBooks nonprofit, QuickBooks Online
ii. Aplos, ChurchTrac

a. Church Finance: The Church Leader's Guide to Financial Operations, Michael Batts
b. Church Administration and Finance Manual: Resources for Leading the Local Church, Otto F. Crumroy, Stan Kukawka & Frank M. Witman
c. Budgeting for a Healthy Church: Aligning Finances with Biblical Priorities for Ministry, Jamie Dunlop and Tim Challies
d. The Business of Ministry, Jeff Simmons
e. Smart Church Finances: A Pastor’s Guide to Budgets, Spreadsheets, and Other Things You Didn’t Learn in Seminary, George Hillman, Jr.
f. Contagious Generosity: Creating a Culture of Giving in Your Church, Chris Willard

a. Church Accounting: The How to Guide for Small & Growing Churches, Lisa London
b. Accounting & Financial Reporting Guide for Churches and Ministries. Accounting Committee for Churches and Ministries
c. https://www.churchlawandtax.com/
d. https://www.freechurchaccounting.com/

a. Abuse best practices

b. Affirmation of Church’s Statement of Faith and personal conduct

c. Federal/State hiring forms – Employment forms must be completed for pastoral and church staff.

i. Form I-9
ii. IRS W-4 Form
iii. State required New Hire Form
iv. PA: Local Earned Income Tax Withholding Residency Certification Form
v. NJ: NJ-W-4

A minister's "dual tax status" means they are treated as an employee for federal income tax purposes but as self-employed for Social Security and Medicare (SECA) taxes. This unique distinction has significant implications for how ministers file their taxes and pay into these systems. The minister is therefore required to pay Federal tax on non-housing allowance wages as well as self-employment tax (15.3%) on all wages.

a. Employee benefits

Church health and employee benefits, including medical, dental, vision, and life insurance, are essential for attracting staff, with popular options for smaller organizations being ICHRA (Individual Coverage Health Reimbursement Arrangement) or QSEHRA (Qualified Small Employer Health Reimbursement Arrangement). These tax-advantaged tools allow churches to reimburse employees for insurance premiums. Comprehensive plans also often include retirement (403(b)), paid time off (PTO), and disability coverage.

Key Health Coverage Options for Churches

• • Health Reimbursement Arrangements (HRAs): QSEHRA is suitable for smaller churches (fewer than 50 employees) to reimburse employees tax-free for insurance premiums and medical expenses. ICHRA allows for more flexibility and can be used for various group sizes.
  • Group Health Plans: These provide medical, dental, vision, and behavioral health, often featuring options like PPOs, EPOs, and CDHPs/HSAs.
  • Individual Plans: Churches with one employee can directly support the purchase of an individual plan.
  • Additional Wages: Churches can pay additional wages for staff to purchase their own health insurance.

Additional Essential Employee Benefits

• • Retirement Plans: 403(b) plans are standard, often with employer-matching contributions. GuideStone Financial Resources is the preferred retirement solution of the BRN.
  • Paid Time Off (PTO): Typically includes vacation, sick leave, and holidays, with two to three weeks being common.
  • Life and Disability Insurance: Group term life, accidental death, and short/long-term disability coverage are often included to protect staff. GuideStone Financial Resources is the preferred life and disability insurance solution of the BRN.
  • Wellness Programs: Many plans now offer Employee Assistance Programs (EAPs), telehealth, and mental health support.

Implementation Tips

• • Consult Professionals: Working with a benefits consultant ensures compliance, particularly with tax regulations regarding taxability and reimbursements.
  • Budget Considerations: Spend time researching and finding the option that best fits the church’s budget.

b. State Convention Benefits

Compensation Planning

Ministerial Tax Issues and Key Resources

Employment / Personnel Manual Sample

Overtime Laws

a. Define - An accountable reimbursement plan is an arrangement that allows an employer to reimburse employees for legitimate business expenses on a tax-free basis. Under rules set by the IRS, the payments are not considered taxable income for the employee and are not subject to payroll taxes for the employer. For a plan to be considered "accountable," it must meet three key requirements.

b. Sample

a. KY Baptist Sample

b. CDN Sample

c. ECFA

a. Event Planning Progress Sheet

b. Church Project Management Resource

PA Annual Filing Requirements

NJ Annual Filing Requirements

Records Retention Requirements

For churches in good standing with the BRN and who have been actively giving to cooperative missions through the Cooperative Program, and have given through the BRN, may be eligible to obtain 501(c) (3) Group Exemption through the SBC. Your church should contact the SBC Executive Committee directly to inquire.

The BRN has a resource tool to help your church create or revise its Constitution and Bylaws. This is from an administrative and legal perspective and has been reviewed by the BRN’s legal counsel. Please reach out to the BRN’s helpdesk to inquire.

a. PA

b. NJ

a. Church Law & Tax

b. Brotherhood Mutual (Legal Assistance)

c. Alliance Defending Freedom

a. Church: Brotherhood Mutual

b. Mission Trip: Faith Ventures

a. Have a business meeting and record the Meeting Minutes

b. Follow the church’s Dissolution Clause

c. Settle all debts and obligations

d. Transfer of assets to those 501c3 organizations as prescribed in the Dissolution Clause

e. Closing of the organization (with the state) – File the dissolution documents

f. File a final tax return with the IRS by checking the “Final Return” box on Form 941.