Employment

Welcome Relief: Clergy Housing Allowance Upheld

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Welcome News

The clergy housing allowance is safe for now.  Last week, the Seventh Circuit Court of Appeals reversed a Wisconsin federal district court, which struck down the venerable clergy housing allowance.  As a result of the Seventh Circuit’s decision, clergypersons who serve churches, synagogues, mosques, and other worshipping groups, may continue to exempt certain parts of their compensation from federal income tax. 

Diverse Religious Groups Unite on Clergy Housing Allowance Appeal

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What will become of the clergy housing allowance?  We have been following the legal developments a 2013 Wisconsin federal district court case, which struck down the venerable income tax benefit as unconstitutional. The case is now on appeal before the Seventh Circuit Court of Appeals.  See Freedom from Religion Found., Inc. v. Lew, 983 F. Supp. 2d 1051 (W.D. Wis.

Nonprofit Payroll Tax Alert

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A recent federal government report shows that thousands of nonprofits are not meeting their payroll tax obligations.  Though it may be tempting for nonprofits to avoid payroll tax responsibilities, especially when facing cash flow challenges, such avoidance is extremely risky. 

Payroll Tax Primer

By Executive Order – No LGBT Discrimination

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President Obama recently signed an executive order prohibiting federal contractors and subcontractors from engaging in employment decisions based on sexual orientation and gender identity.  The President’s order amends previous executive orders regarding employment discrimination dating back to the 1960s, which were implemented to prevent racial discrimination in hiring and contracting decisions made by organizations receiving federal funding. Previously, the order prohibited employment decisions based on race, color, religion, sex, or national origin.  President Obama extended the order to

Volunteer Handbooks: Benefits and Best Practices

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Many nonprofit organizations rely on volunteers to serve vital operational needs.  From overseeing major fundraising events to filling daily administrative or other critical operational needs, volunteers often serve as the hands-and-feet of an organization. They significantly expand the organization’s capacity and mission-impact, beyond their paid-staff.  Yet, given their vital role, the expectations, guidelines, and management of volunteers are often overlooked. 

The Clergy Housing Allowance On Trial – New Developments

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Will the clergy housing allowance stand?  Members of the clergy continue to receive mixed signals.  Two federal district courts in Kentucky and Wisconsin have considered the question – with very different outcomes.  The Wisconsin case is now on appeal before the Seventh Circuit Court of Appeals.  The venerable housing allowance stands in the balance.  Hundreds of thousands of clergypersons could be impacted by outcome of the appeal. We therefore provide this update and some insight on how the divergent outcomes might impact the Seventh Circuit’s decision. 

Affordable Care Act Whammy: Changing Health Insurance Premium Tax Rules

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Watch out!  The Affordable Care Act (ACA) has wrought a drastic change for all employers providing pre-tax benefits through reimbursement or payment of insurance premiums for employees’ individual heath plans.

For over half a century, employers have been able to offer pre-tax health insurance benefits to their employees, either  (a) by paying for health insurance group plans or (b) by paying for the employees’ premiums, deductibles, and co-payments for their individual plans.  Thanks to the IRS’ and Department of Labor’s recent regulatory implementation of the ACA, however, the second option has been completely eliminated. Consequently, starting in 2014, any benefits paid by employers to employees to cover their individual health insurance premiums or other reimbursement of health insurance costs will no longer qualify as pre-tax benefits.  Instead, the financial value of such benefits will be fully taxed for income and FICA purposes.  This change in the law is not limited to employers with fifty or more employees, as many of the initial notices regarding the application of the ACA had implied. 

What if any relief can be sought?  A few options are available, although they may be challenging for smaller organizations. 

The first option is to get a group insurance plan, for which the premiums will be tax-free to the employee.  With a group plan in place, employers can additionally offer pre-tax health reimbursement benefits to employees if desired, such as for co-payments, co-insurance, and deductibles.   Alternatively, this additional benefit may be offered to an employee whose spouse is covered by a group plan maintained by the spouse’s employer.

The second option is to pursue broader pre-tax benefit opportunities for employees, such as through a cafeteria plan.  Such a plan effectively allows employees to pick and choose from a “menu” of available health-related benefits, with cash in lieu of benefits being one of the choices.  The downside has the expense involved in setting up such a benefits plan, which must be in writing, involves complex legal compliance requirements, and typically requires the assistance of a benefits consulting firm.   Given these realities, now may be the time to promote good will and care for one’s employees, through the establishment of expanded health and other employee-related benefits.  

Federal District Court Judge Holds Clergy Housing Allowance Exemption Unconstitutional

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As of last week, religious institutions and the clergypersons who serve them have been put on notice:  Subject to appeal, a Federal statute that provides an exemption for the housing allowance for clergy members has been held unconstitutional.  For now, the holding affects only clergy who receive cash compensation for a housing allowance, not clergy who reside in a parsonage or other accommodations provided for the convenience of the employer.

Religious Liberty and Same-Sex Marriage: Colliding Freedoms?

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On November 5, 2013, the Illinois legislature became the next government body to approve of same-sex marriage, following the United States Supreme Court’s recent invalidation of the federal definition of marriage as being between a man and a woman. The Illinois bill is expected to become law upon Governor Quinn’s signature. 

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