During the first three months of the COVID crisis, the big concern was if churches were going to have enough money to keep operating…to pay their pastor, utilities, and mortgages. As time goes on, many churches are finding out that their finances are doing great all things considered. Now that they are able to catch their breath, they may want to thank their pastor with more than words or a card, or even a hot dish.
The CARES Act allows you to make payments toward your employees’ student loans (including your pastor’s) with tax-free money! I love the phrase “tax free.” This is only available during 2020. You still have to jump through some hoops, but it’s not too bad. The video will explain it.
After you calculate the bottom line…how much income your church can expect to receive, the next step is to tackle the fixed costs: Personnel, Property, and Denominational Dues. In a typical church, these costs account for 75-85% of the operating budget…so it makes sense to tackle them first.
One thing to keep in mind is that these costs are not necessarily set in stone. As the church’s strategy for ministry changes, this often affects the staffing and property needs. But, for the most part, these are pretty stable from year to year. The most difficult part of this section is the decision on giving raises to church staff. Are they being paid a competitive rate…or even a legal rate? If we can’t afford a large raise, is there anything else that churches can do to tangibly show their appreciation?
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.