Clergy Tax Facts
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.
|Withholding FICA and Medicare taxes on ministers and/or using the federal withholding tables to compute federal withholding.|
|Paying tax-free housing or parsonage allowance to non-ministers.|
|Not including fair rental value of employer provided housing as wages for
|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.|
|Not including bonuses, taxable love gifts, wedding fees, etc. as taxable income on the W-2.|
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.
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.
Not including Group-Term Life Insurance in excess of $50,000 on the W2.
|Treating ministers as self-employed for income taxes.
|Not filing quarterly 941 payroll forms.
|Not issuing W2 or 1099-Misc. forms.
|Not complying with payroll tax deposit requirements.
|Church employees failing to pay self-employment taxes if their employing church exempted itself from the employer's share of FICA taxes.|
|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.
|If you have any questions or would like free quote,
contact our payroll customer service.
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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.