Being a church treasurer is not a job for wimps. The church is working in the world of faith, but try cutting a check that is backed by faith instead of dollars. Try telling the IRS that the mistake on the tax forms is okay because of faith. Treasurers are the ones in middle trying to advance the work of faith without getting in trouble with the law.
Getting the pastor setup correctly in payroll is a big victory. Most payroll software wasn’t designed with pastors in mind. They were an afterthought so that’s why it’s sometimes tricky. Here’s the big things that often cause issues:
- What to do with the Housing Exclusion? The housing exclusion is the part of the pastor’s salary that is designated for housing to reduce taxable income. You usually need to break this out.
- Example: Salary of $45,000 with $5,000 housing exclusion: Enter $40,000 for salary and $5,000 Clergy Housing (Cash)
- What to do with Tax Withholding? Pastors are employees for IRS purposes but self-employed for Social Security purposes. That means you SHALL NOT withhold for Social Security and Medicare. It’s optional to withhold for income tax.
- There is usually a check box or button to make the pastor exempt from Social Security and Medicare. Find that and click it.
- Ask the pastor if they want income tax withheld and how much they want withheld per paycheck. They should fill out the W-4 to confirm this by writing “EXEMPT” in Step 1.c…even though that’s not an option. Then enter the amount to withhold per paycheck in Step 4.c.
- Pastor Payroll Worksheet: https://www.dakotasumc.org/media/files/CONFERENCE/5_Conf_Finance_Benefits/Finance/Pastor_Payroll_Worksheet.xlsx
- Housing Exclusion vs Housing Allowance Explained: https://jctaccounting.com/2019/12/20/housing-allowance-vs-housing-exclusion/
- Form W-4: https://www.irs.gov/pub/irs-pdf/fw4.pdf