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Unemployment benefits are available to workers who lose their job involuntarily because of reasons out of their control and meet basic state law eligibility requirements.

Unemployment benefits are administered at the state level and offer temporary financial help to workers who have lost their job and meet state law requirements. Most employers are required to pay federal and state unemployment taxes, which provide the funds to pay unemployment compensation.

Generally, churches are not required to pay these taxes because they are exempt from the Federal Unemployment Tax Act (FUTA) under section 501(c)(3) of the Internal Revenue Code. However, not paying the tax means church employees will not be eligible to collect unemployment benefits.

Churches that want employees to receive unemployment compensation must develop a policy and method for willingly paying benefits. Churches can:

  • Purchase unemployment insurance through a private insurer.
  • Reserve funds for severance packages.
  • Reimburse the state for unemployment benefits.

Because churches do not pay into the state for unemployment benefits, many states require written notice to be made to employees upon employment notifying them that wages earned will not be used to determine unemployment benefits.

Churches are treated differently for payroll compliance than other types of organization. They have advantages and disadvantages that no one else has. Often, confusion exists concerning payroll compliance, clergy compensation, deductions, etc. Our advisors can sort out the complexity of the law. 

Do you have questions relating to your church payroll?

Our Pro-Advisor team is here to answer your questions. A few examples listed below.

• Questions relating to a clergy tax return
• Tax considerations of compensation packages
• Housing allowance 
• Advantages and disadvantages of reimbursement plans
• Tax planning  before or after retirement
• Questions relating to bookkeeping
• Payroll or HR compliance
• And much more!

Schedule your Pro Advisor appointment today!

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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

For more information or if you need additional assistance, please use the contact information below.

Clergy Financial Resources
11214 86th Avenue N.
Maple Grove, MN 55369

Tel: (763) 425-8778 
Fax: (888) 876-5101
Email: clientservices@clergyfinancial.com

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