For those of us that are a little older, we remember when the pastor was on the denomination’s health insurance, and the only other health benefit was if the church decided to reimburse an employee for premiums. And then Obamacare happened. Obamacare changed a lot of things. One of the negative changes is that these very informal reimbursement agreements became taxable. Soon after the election of President Trump, a loophole opened up that allows reimbursements in a very regulated way. This loophole is QSEHRA (I pronounce it Q-Sara).
Here’s the gist of it.
Almost all churches can use this.
Need to offer the same amount to all eligible employees (except can discriminated based on age and family status).
Need to adopt a Plan Document (template below in the links).
A lot of churches reimburse mileage for their pastor. Pastors can put on quite a few miles…especially if they serve multiple churches. Mileage can actually be a major part of the budget. One of the issues is knowing the difference between commuting miles and business miles because commuting is not reimbursable.
I took my info from New Clergy Training on Accountable Reimbursements to help teach on this one issue. Why is this important? 1)It protects the church from paying for mileage they shouldn’t. 2)It protects the pastor from adverse tax consequences as reimbursing commuting miles is taxable. 3)It prevents hard feelings from misunderstandings.
If you’re a new church treasurer, and, after three months, you finally are feeling comfortable cutting paychecks for your pastor and lay employees. Then the IRS comes in demanding information on the Form 941. Does a church really have to fill out this form? That depends.
The short answer is, if you just have a pastor and are not withholding Federal Income Tax, you do not have to do the Form 941. If you do have to file the Form 941, it’s not horrible. I walk you through it. I’m mainly focusing on small and medium-sized churches that don’t have to monthly remit payroll withholdings. For larger churches, chances are you have payroll software that fills this out for you.
Like I said in a previous post, payroll is the most intimidating part of being a church treasurer. What makes it worse is that most churches just a handful of employees…maybe a part-time custodian and secretary. It just doesn’t make financial sense to shell out much for payroll software when your payroll is minimal. Without payroll software, how do you run payroll manually…especially when you have a lay employee or two.
Don’t worry though. While payroll for lay folks is painful, it’s not impossible. I show you how to calculate the withholdings and share with you a spreadsheet like the one I’ve used in the past for this purpose.
When I became a church treasurer, the scariest part of the job was payroll. I was a CPA. I worked as an auditor for the State of North Dakotas. I knew about taxes and payroll liabilities and all that fun stuff, but I’d never actually cut a payroll check before. To make matters worse, no university trains people on clergy taxes. I was completely unprepared for cutting my pastors paycheck.
I’m not alone. I’ve helped train in numerous church treasurers and this is almost always the biggest concern. What I’ve found out is that cutting a paycheck for your pastor is less complex than cutting a paycheck for a lay employee. You need to understand the Housing Exclusion and how your payroll software (if you use any) handles that. Once you get that, it’s smooth sailing…no FICA…usually no Federal Income Tax Withholding.
A lot of churches have tight budgets so they cut Worker’s Comp coverage. Can they do this legally in North or South Dakota? Should they do this? Honestly, I’m a little murky on the North Dakota answer. I read in the Century Code how they do not consider church work to be “Hazardous Employment.” They also don’t consider farm employment hazardous…so I’m pretty sure they just didn’t want to use the word Exempt. In South Dakota, there’s no hint of any exemption, but Workers’ Comp is kind of…optional. No matter what, you’re liable, but you can either self-insure or by insurance. I would bet this is how it works in North Dakota for church employees. You are liable no matter what.
Worker’s Comp is important because it can protect both the pastor and the church when someone gets hurt on the job. Pastors actually put themselves at risk more often than you think when they are driving from place to place, working with youth, and helping out in the kitchen or with maintenance. Whenever you go to the doctor with an injury, their health insurance will want to know if the injury happened on the job to determine whether or not they will pay for the treatment.
Are there other organizations the have troubles telling the difference between employees and independent contractors? I think this is primarily a church problem. Churches often have a lot of very part-time people paid small amounts. Maybe this used to be a volunteer position that is now paid. When does that person turn into an employee? How could you tell the difference?
When you stop and think about it, it’s not that difficult. Does the person your paying act like a business? Do they have more customers than just the church? Do you give them raises like other employees or do they negotiate the rate they want to get paid? Have they taken any other steps to look like a business…like registering with the State or the IRS?
The reason this is important is for when things go wrong. For employees, the church needs to show a higher level of care. If someone get’s hurt or feels taken advantage of, the remedies and expectations (legal or not) are different.