5.
Ministers and Church Employees
This is archived information that pertains only to the 2006 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
Self-employed ministers and church employees who participate in 403(b) plans generally follow the same rules as other 403(b)
plan participants.
This means that if you are a self-employed minister or a church employee, your MAC generally is the lesser of:
For most ministers and church employees, the limit on annual additions is figured without any changes. This means that if
you are a minister or
church employee, your limit on annual additions generally is the lesser of:
-
$42,000 ($44,000 for 2006), or
-
Your includible compensation for your most recent year of service.
Although, in general, the same limit applies, church employees can choose an alternative limit and there are changes in how
church employees,
foreign missionaries, and self-employed ministers figure includible compensation for the most recent year of service. This
chapter will explain the
alternative limit and the changes.
Who is a church employee?
A church employee is anyone who is an employee of a church or a convention or association of churches, including an
employee of a tax-exempt
organization controlled by or associated with a convention or association of churches.
Alternative Limit for Church Employees
If you are a church employee, you can choose to use $10,000 a year as your limit on annual additions.
Total contributions over your lifetime under this choice cannot be more than $40,000.
Changes to Includible Compensation for Most Recent Year of Service
There are two types of changes in determining includible compensation for the most recent year of service. They are:
-
Changes in how the includible compensation of foreign missionaries and self-employed ministers is figured, and
-
A change to the years that are counted when figuring the most recent year of service for church employees and self-employed
ministers.
Changes to Includible Compensation
Includible compensation is figured differently for foreign missionaries and self-employed ministers.
Foreign missionary.
If you are a foreign missionary, your includible compensation does not include contributions made by the church during
the year to your 403(b)
account.
If you are a foreign missionary, and your adjusted gross income is $17,000 or less, contributions to your 403(b) account
will not be treated as
exceeding the limit on annual additions if the contributions are not in excess of $3,000.
You are a foreign missionary if you are either a layperson or a duly ordained, commissioned, or licensed minister
of a church and you meet both of
the following requirements.
Self-employed minister.
If you are a self-employed minister, you are treated as an employee of a tax-exempt organization that is a qualified
employer. Your includible
compensation is your net earnings from your ministry minus the contributions made to the retirement plan on your behalf and
the deduction for one-half
of the self-employment tax.
Changes to Years of Service
Generally, only service with the employer who maintains your 403(b) account can be counted when figuring your limit on annual
additions.
Church employees.
If you are a church employee, treat all of your years of service as an employee of a church or a convention or association
of churches as years of
service with one employer.
Self-employed minister.
If you are a self-employed minister, your years of service include full and part years during which you were self-employed.
