Clergy Tax Facts

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Each year sixty percent of the church W-2 forms are reported with errors. This is created by the lack of understanding of the reporting requirements of taxable income, how to handle various housing situations, reimbursement and allowance plans, and the elements of clergy compensation.

If payroll and the related taxes are not reported properly or withheld and remitted incorrectly, the IRS can impose severe penalties on the church and the treasurer. Ignorance of the law is not a defense in the eyes of the IRS or the courts.

  
       
  Church Payroll errors Withholding FICA and Medicare taxes on ministers and/or using the federal withholding tables to compute federal withholding.  
     
       
  Church Payroll errors Paying tax-free housing or parsonage allowance to non-ministers.  
       
 
Church Payroll errors
 Not including fair rental value of employer provided housing as wages for
non-ministers.		  
 
       
 
Church Payroll errors
 Not recording salary reduction 403b contributions or other deductions in box 12. The 403b contributions must be printed in Box 12 of the W-2 with a code of E.  
 
       
 
Church Payroll errors
 Not including bonuses, taxable love gifts, wedding fees, etc. as taxable income on the W-2.  
 
 
Church Payroll errors

Not including personal expenses of employees (ministerial or lay) which are paid by the church either to or for the employee in the employee’s taxable income on the W-2 and withholding the proper taxes. This may be for car allowances, any reimbursement not under an accountable plan, undocumented reimbursements, personal car payments, personal car gasoline, personal car repairs and maintenance, personal car insurance, personal life insurance, personal quarterly estimated taxes, and social security reimbursements.

 
   
 
 
Church Payroll errors

Paying for utilities, lawn care, repairs, etc. for the minister’s house in addition to the minister’s designated housing allowance. If they are not included in the housing allowance, then they essentially become taxable income to be reported on the W-2. If these are covered by the board designated housing allowance, they still must be reported to the minister for inclusion in self-employment income.

Note: For parsonages, if the church pays the utilities, these are deemed to be approved by the church. They must be reported to the minister for his inclusion as self-employment income in computing self-employment tax.

  
   
 
 
Church Payroll errors

Not including Group-Term Life Insurance in excess of $50,000 on the W2.

 
 
Church Payroll errors
 Treating ministers as self-employed for income taxes.
  
       
 
Church Payroll errors
 Not filing quarterly 941 payroll forms.
 
       
 
Church Payroll errors
 Not issuing W2 or 1099-Misc. forms.
 
       
 
Church Payroll errors
 Not complying with payroll tax deposit requirements.
 
       
 
Church Payroll errors
 Church employees failing to pay self-employment taxes if their employing church exempted itself from the employer's share of FICA taxes.  
 
   
  Church Payroll errors Failure to provide Forms 1099-MISC to nonemployee recipients of $600 or more of annual income
  
       
   

If you can relate to any of the above situations, please contact us for further payroll review.

 
       

 

Enroll in Church Payroll If you have any questions or would like free quote,
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Tel: 763.425.8778
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Email - cfr@clergytaxnet.com		  
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Guide
Handbook
Church
 
2010-2011 Compensation
Handbook for Church staff
James E. Cobble - Richard Hammar
Essential Guide to Church Finances
Richard Vargo - Vonna Laue
       
 
Get a better understanding of
U.S. tax laws as they relate to
pastors and churches with the
Church & Clergy Tax Guide
Every church and its employees
want to feel confident that
their compensation plan is
reasonable and fair.
To accomplish your church's mission
and vision for ministry you need to
effectively manage your church's finances
       
 

 

Clergy should not view this information as a substitute for professional advice. This information is subject to change, due to administrative rulings or interpretations and or technical corrections by the IRS. If legal advice or other expert assistance is required, the services of a competent clergy tax professional person should be sought.