A church that takes the time to properly structure a minister’s compensation and benefits is practicing good stewardship which can make a huge difference in the current financial life — and financial future — of a pastor.
Unfortunately, many pastors are losing out on cash earnings because of the way their benefits are bundled.
The lump sum “package” approach is when a church will set aside a lump sum amount in the budget and then burdens the pastor with determining how to allocate those dollars for his own salary, benefits and ministry-related expenses from his own pocket. While this may seem like the most flexible and simple approach, it will likely result in the pastor paying more in taxes and may lead to financial hardship for the church and the pastor if he does not allocate a portion towards retirement and insurance coverage. It also distorts the actual amount a pastor will have as net income after taxes for his own family.
Utilizing the same amount with a properly structured salary-and-benefits approach, the church assumes responsibility for allocating the dollars designated as salary, expenses, housing allowance and benefits. This results in the pastor having more net take-home pay since the church is paying for benefits and reimbursing ministry-related expenses instead of including them in his salary.
Another key element in properly structuring the minister’s compensation is an Accountable Reimbursement Plan or an ARP for ministry-related expenses. With the changes implemented in the Tax Cuts and Jobs Act of 2017, it is now more important than ever to properly reimburse expenses via an ARP because a minister may no longer deduct unreimbursed employment-related expenses such as vehicle use for business purposes, books, continuing education, and other expenses. GuideStone® has created a template for churches to utilize in creating an ARP – and you can find it inside the Compensation Planning Guide at GuideStone.org/CompensationPlanning. You will also find a step-by-step process to budget for ministry expenses and to properly structure the minister’s compensation plan – including salary and benefits provided by the church.
Navigating ministerial financial planning can be complicated, but as part of GuideStone’s mission to enhance the financial security and resilience for those who serve the Lord, we have developed resources to make it easier for you. For more information about common financial and tax-related questions and considerations for ministers, please visit GuideStone.org or call us Monday through Friday, from 7 a.m. to 6 p.m. CT.
We look forward to serving you as you serve the Lord.