CHURCH FINANCE & GOVERNANCE

Churches face distinct financial challenges at the intersection of ministry, tax law, and nonprofit
governance. These topics address the unique needs of religious organizations.

TOPIC 182
Church Financial Management Fundamentals
Sound financial management is essential for churches to fulfill their mission with integrity and maintain the trust of
their congregation and community. This topic establishes the foundational principles and practical systems for
church financial administration.

The unique financial structure of a church
Separating church funds: operating, benevolence, building, missions
Cash handling policies and internal controls
Financial reporting to the congregation
Role of the church treasurer and finance committee
Bookkeeping methods and software for churches
Annual financial review and accountability
Biblical principles of financial stewardship in the local church

TOPIC 183
Pastoral Compensation Packages: Structure and Tax Implications
Pastor compensation involves unique tax rules that differ from standard employment, requiring churches and their
advisors to structure packages correctly to maximize benefits and avoid penalties. This topic demystifies pastoral
compensation planning from both the church’s and the minister’s perspective.

Components of a pastoral compensation package
Base salary vs. housing allowance vs. other benefits
Health insurance and retirement contributions
Auto and transportation allowances
Continuing education and professional development allowances
Dual status taxation: minister as employee for income tax, self-employed for FICA
Accountable vs. non-accountable reimbursement plans
Compensation benchmarking for churches

TOPIC 184
Housing Allowance and Parsonage Benefits for Clergy
The clergy housing allowance is one of the most valuable tax benefits available to ministers, allowing a designated
portion of compensation to be excluded from federal income tax. This topic provides detailed guidance on how to
properly establish, calculate, and report the housing allowance.

Biblical and historical basis of the clergy housing allowance
IRS Code Section 107 and housing allowance rules
How to properly designate the housing allowance
What qualifies as a housing expense
Calculating the excludable housing allowance amount
Parsonage provided by the church: tax treatment
Housing allowance for retired ministers
Recent legal challenges and the current status of Section 107

TOPIC 185
Clergy Tax Returns: Filing as a Minister
Ministers face some of the most complex individual tax situations in the U.S. tax code, requiring specialized
knowledge to file returns accurately and take advantage of available exclusions. This topic is an essential guide for
clergy and the CPAs who serve them.

Dual tax status: W-2 employee and self-employed for FICA
Self-employment tax on minister income
Reporting housing allowance on Schedule SE and Form 1040
Opting out of Social Security: Form 4361
Minister’s deductible business expenses
Quarterly estimated tax payments for clergy
IRS audit triggers specific to clergy returns
Common mistakes on clergy tax returns

TOPIC 186
Church Payroll: Minister as Employee vs. Self-Employed
Church payroll is uniquely complex because ministers occupy a dual status that affects how income and
employment taxes are calculated and reported. This topic helps churches and their financial administrators navigate
payroll compliance for both ministerial and lay staff.

Why ministers are always self-employed for FICA purposes
When a minister is an employee vs. independent contractor for income tax
Church payroll processing for ministerial staff
Non-ministerial church employee payroll and tax withholding
Issuing W-2s to ministers (including housing allowance in Box 14)
Form 941 for churches and the FICA exemption election
Voluntary withholding agreements with ministers
Payroll software options for small and mid-size churches

TOPIC 187
Church Budgeting: Building a Faith-Centered Financial Plan
A church budget is more than a financial document — it is a statement of congregational priorities and a tool for
faithful stewardship of God’s resources. This topic guides church leaders through a biblically grounded and
financially sound budget development process.

The purpose and theology of a church budget
Budget development process and congregational input
Zero-based vs. incremental budgeting for churches
Budget categories: worship, missions, administration, facilities, outreach
Budgeting for staffing and compensation
Building reserves and capital replacement funds
Monitoring budget vs. actual throughout the year
Communicating the budget to the congregation

TOPIC 188
Benevolence Funds: Policies, Compliance, and Administration
Benevolence funds allow churches to minister to those in need, but without proper policies and documentation,
they can create tax and fraud risks for the organization. This topic establishes a compliant, compassionate
framework for administering church benevolence programs.

Defining a benevolence fund and its biblical purpose
IRS requirements for church benevolence programs
Establishing a formal benevolence fund policy
Application process and need verification
Who can receive benevolence assistance (congregation vs. community)
Direct payments vs. cash gifts to recipients
Recordkeeping requirements for benevolence distributions
Preventing fraud and abuse in the benevolence fund

TOPIC 189
Church Building Projects: Financing and Financial Management
Building projects represent some of the largest financial commitments a church will ever make, requiring careful
planning, dedicated financing, and rigorous financial controls. This topic prepares church leaders and financial
teams for the complexities of funding and managing construction.

Assessing readiness for a building project
Church construction loans and mortgage financing
Capital campaigns: planning and execution
Bond programs for church financing
Facility needs assessment and feasibility studies
Construction contract management and budget controls
Managing cash flow during construction
Stewardship theology and communicating the vision to the congregation

TOPIC 190
Church Investment Policies and Endowment Management
As churches accumulate reserves and receive endowment gifts, they need formal investment policies to ensure
funds are managed prudently and in alignment with the church’s values. This topic covers the development and
implementation of biblically responsible investment policies for churches.

Why churches need a formal investment policy statement
Biblically responsible investing (BRI) principles
Asset allocation for church reserves and endowments
Investment vehicles appropriate for churches
Selecting and overseeing investment managers
Endowment spending policies and long-term sustainability
Donor-designated endowment gifts
Reporting investments to the board and congregation

TOPIC 191
Denominational Financial Structures and Relationships
Churches operating within denominational structures face unique financial reporting, giving, and accountability
relationships that differ from independent congregations. This topic explores the financial dynamics between local
churches and their denominational bodies.

How denominational financial oversight works
Fiscal relationships between local churches and denominations
Apportionment, assessments, and giving formulas
Denominational retirement and benefit plans for ministers
Multi-site church financial structures
Plant church financial accountability to a sending church
Independent church governance and financial accountability alternatives
Navigating financial autonomy within a denominational framework

TOPIC 192
Church Audits and Internal Controls
Internal controls protect churches from fraud, errors, and mismanagement, and demonstrate faithful stewardship to
the congregation and the public. This topic outlines the essential controls every church should implement and how
to conduct meaningful financial reviews.

Why internal controls are essential in the church
Segregation of duties in church finance
Dual-count offering counting procedures
Bank reconciliation and authorization controls
Internal audit function for larger churches
When to engage an external CPA for review or audit
Responding to an IRS inquiry or state audit
Creating a culture of financial accountability in the church

TOPIC 193
Church Board Governance and Financial Oversight
Effective church governance ensures that financial decisions are made transparently, accountably, and in alignment
with the church’s mission and legal obligations. This topic provides a framework for church boards to exercise
meaningful financial oversight.

Structure of church governance: elder board, deacon board, trustee board
Board financial oversight responsibilities
Establishing and empowering a church finance committee
Board approval thresholds for expenditures
Reviewing and approving the annual budget
Conflict of interest policies for church leaders
Executive pastor and senior pastor financial authority
Governance documents: constitution, bylaws, financial policies

TOPIC 194
Love Offerings and Special Gifts: Tax and Compliance Issues
Love offerings and special gifts present significant tax compliance challenges for churches and recipients,
particularly when proper procedures are not followed. This topic clarifies the IRS rules governing love offerings and
provides churches with practical compliance protocols.

What is a love offering and how is it treated for tax purposes
Employee vs. non-employee recipient distinctions
When love offerings are taxable income to the recipient
IRS rules on discretionary funds controlled by pastors
Reporting requirements for love offerings on W-2 and 1099
Guest minister love offerings and honoraria
Church liability for improperly handled special gifts
Best practices for love offering policies and documentation

TOPIC 195
Maintaining Church Tax-Exempt Status
Churches enjoy broad tax exemptions that can be jeopardized by political activity, private inurement, excessive
compensation, or unrelated business activities. This topic helps church leaders understand and protect their
tax-exempt status under federal and state law.

How churches qualify for automatic tax exemption
The Johnson Amendment: political activity restrictions
Private benefit and private inurement prohibitions
Lobbying limitations for churches
Excessive compensation and intermediate sanctions
Unrelated business income risks to exempt status
IRS church examination procedures
State property tax exemption maintenance

TOPIC 196
Tithes and Offerings: Accounting, Receipting, and Stewardship
The accounting and stewardship of tithes and offerings is central to a church’s financial integrity and its relationship
with givers. This topic establishes best practices for receiving, recording, receipting, and reporting congregational
giving with accuracy and transparency.