Disclaimer: This is general tax advice so don’t sue me. The question I was left with last week was: Can the church claim a payroll tax credit if their pastor is out because of COVID? After doing much research and calls, I came to the conclusion that the church cannot claim the tax credit.
The primary reason for this is the pastors confusing tax status. The IRS considers them to be employees, but the Social Security Administration considers them to be self-employed. This credit is tied to payroll taxes which are under the Social Security Administration.
This does open it up that the pastor might be able to claim this tax credit on their personal tax return. This could be a nice bonus for pastors…as long as they keep documentation of their time out. My preliminary estimate is that pastors could get around a $2,000 credit on their taxes. Here’s how I calculated it:
- $50,000 in Self-Employment Income (Base Salary of $42k + Fair Rental Value of Parsonage of $12k – Salary Withholdings of $4k)
- ÷ 260 Work Days (The IRS assumes self-employed folks work just 5 days per week 52 weeks a year. Isn’t that cute.)
- x 10 Days (if you were out two weeks, you would get 5 days/week.)
- = $1,923 Tax Credit
- Previous post concerning Lay Employees: https://jctaccounting.com/2020/11/13/families-first-tax-credit-for-lay-employees/
- Families First Bill (page 86 identifies type of wages that count): https://www.congress.gov/116/bills/hr6201/BILLS-116hr6201eh.pdf
- IRS Guidance on how Minister wages are coded (Page 2): https://www.irs.gov/pub/irs-utl/ministers.pdf
- Form 941: https://www.irs.gov/pub/irs-pdf/f941.pdf