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Clergy Compensation

Parish treasurers are responsible for monitoring the salary and housing compensation for clergy. They need to keep abreast of the median family income for their area. Treasurers are also responsible for managing payroll for clergy and non-clergy employees. They must also withhold federal income tax, Social Security, and Medicare taxes as necessary for parish clergy or non-clergy employees.

Clergy Compensation

The 1995 Clergy Compensation Guide was provided by the Office of the Treasurer of the Orthodox Church in America, Syosset, NY. Its purpose was to help lay leaders of a parish arrive at a recommendation on the salary for a parish priest commensurate with the value that Orthodox Christians place on the special pastoral services needed by every parish.
You may download Clergy Compensation Worksheet that was included in that document.

Recommended benefits for clergy include:

  • Medical Insurance – available through Orthodox Church in America
  • Pension – available through Orthodox Church in America. (Parish contribution 6% of total cash salary).
  • Life Insurance – available through Orthodox Church in America.
  • Disability Insurance

    • Paying the Priest

    Classifying Clergy as Employees for Income Tax Reporting Purposes (Rev. 10 Nov 05)

    The information that parish employees provide on their IRS Form W-4 is also used to calculate California Personal Income Tax (PIT) withholding for the priest.

    Employees should complete an Employee Withholding Allowance Certificate (DE 4) if they want to specify the withholding amount for State purposes.

    Housing Allowance (from the 2004 edition of the Church & Clergy Tax Guide).

    Car Allowance (Rev 25 Feb 06)

    The standard business mileage rate for the final four months of 2006 is 44.5 cents per mile. Some churches use the IRS-approved rate, while others use a rate that is either more than or less than the IRS rate.

    • If employees substantiate business miles with adequate records at least every 60 days and are reimbursed at the IRS approved rate, this is an "accountable" arrangement and the church does not report the reimbursements as income on the employee’s W-2 form.
    • If employees substantiate business miles with adequate records at least every 60 days and are reimbursed at an amount MORE than the IRS approved rate, this arrangement is "accountable", but only up to the IRS approved rate.
    • If employees substantiate business miles with adequate records at least every 60 days and are reimbursed at an amount LESS than the IRS approved rate, this arrangement is "accountable". The church does not report any reimbursements on the employee’s W-2 form.
    • If an employee does not substantiate business miles with adequate records, or within every 60 days, then all reimbursements are added to the employee’s W-2 form as income.

    Reporting Withholding

    Quarterly Federal Withholding Reporting Requirements:

    • By the end of the month following each calendar quarter (April 30, July 31, October 31, and January 31), you must file form 941 with the IRS.

    Year-End Federal Withholding Reporting Requirements:

    • Remind clergy and employees to submit a new Form W-4 if they want to change their withholding.
    • Reconcile Form 941, Employer’s Quarterly Federal Tax Return with Form W-2, Wage and Tax Statement and Form W-3, Transmittal of Income and Tax Statements
    • Furnish clergy and employees with a Form W-2.
    • File Copy A of Forms W-2 and the transmittal form W-3 with the Social Security Administration.
    • Furnish each independent contractor with Forms 1099-Misc.
    • File Forms 1099 and the Form 1096, Annual Summary and Transmittal of U.S. Information Returns.

    Quarterly State of California Withholding Reporting Requirements:

    • Individual employee wages must be reported each quarter on the Quarterly Wage and Withholding Report (DE 6). You may also file the form online at http://eddservices.edd.ca.gov.
    • Quarterly withholding tax payments are due and delinquent on the same dates as the DE 6

    Year End State of California Withholding Reporting Requirements:

    • The California parish is also required to file an Annual Reconciliation Statement (DE 7). The DE 7 is due January 1 and delinquent if not postmarked by January 31. This form is used to reconcile wages reported and taxes paid for the prior calendar year. If a tax payment is due, it should be submitted with a DE-88/DE-88ALL coupon.
    • If form DE 7 shows an overpayment, the Employment Development Department (EDD) will send you a refund automatically. The penalty for failure to file the DE 7 timely is $1,000 or five percent of the total yearly taxes required being reconciled, whichever is less.
    • Forms DE 6 and DE 7 are automatically mailed to registered employers

    Paying Withholding Taxes

    Withholding Requirements Each Payday

    Federal

    • Withhold federal income tax based on each clergy or employee’s Form W-4.
    • Withhold ½ of clergy self-employment tax and include the amount as withheld federal income tax.
    • Withhold any non-clergy employee’s share of social security and Medicare taxes.

    State of California

    • Withhold state income tax based on each clergy or employee’s Form W-4 or state Form DE-4.

    Deposit Requirements Monthly or Quarterly

    The frequency of deposits depends on the dollar amount of taxes withheld. In general, however, federal tax deposits are made monthly and state tax deposits are made quarterly.

    Federal Tax Deposits

    You can make your monthly deposits electronically using the Electronic Federal Tax Payment System (EFTPS) or using the deposit coupon, Form 8109-B, Federal Tax Deposit Coupon. Five to six weeks after you receive your employer identification number (EIN), the IRS will send you the coupon book. If you have a deposit due and there is not enough time to obtain a coupon book, blank coupons (Form 8109-B) are available at most IRS offices. You cannot use photocopies of the coupons to make your deposits.

    State of California Tax Deposits

    All tax payments must be submitted with a completed Payroll Tax Deposit (DE 88/DE 88ALL) unless payments are made by electronic funds transfer. Churches do not make Unemployment Insurance, Employment Training Tax (ETT), or State Disability Insurance (SDI) deposits. State deposit due dates are generally the same as federal deposit due dates. Penalty and interest are charged on late deposits.

    Mail DE 88/DE 88ALL Payroll Tax Deposits to:

    Employment Development Department

    PO Box 826276

    Sacramento CA 94230-6276

    W-2 Forms

    Since January 2002, the Social Security Administration (SSA) has offered employers with 20 or fewer employees the ability to go to a Web site, complete Forms W-2 online, and submit them electronically to SSA. No more filling out and mailing paper forms to SSA. W-2 Online even prepares the W-3 for you and allows you to print copies of the W-2s suitable for distribution to your employees.

    A simple registration process is required. You will receive a PIN immediately and a password about two weeks later. You can register online at http://www.ssa.gov/bso/ or call 800-772-6270. You can download and print Forms W-2 and W-3 from the SAA site.

    In filling these out, you may wish to keep the following in mind:

    • Box e: Identify the employee by name. Do not insert titles or academic degrees such as Dr. or Rev. at the beginning or end of the employee’s name.
    • Box 1: Report all wages paid during the year. This includes salary, value of the personal use of an employer provided car, bonuses, most Christmas gifts paid by the church, business expense reimbursements paid under a "non-accountable plan", any portion of a minister’s self-employment taxes paid by the church. Do not include a housing allowance or annual rental value of a parsonage.
    • Box 2: List all federal income taxes that you withheld from the employee’s wages. The amounts reported in this box for all employees should correspond to the amount of withheld income taxes reported on your four 941 forms for the reporting year.
    • Box 3 and 5: Report a non-minister employee’s wages subject to Social Security and Medicare taxes. Boxes 3 and 5 are left blank for priests and deacons with respect to compensation received in the exercise of their ministry.
    • Box 4 and 6: Report the Social Security and Medicare taxes withheld from a non-minister employee’s wages. Boxes 4 and 6 are left blank for priests and deacons with respect to compensation received in the exercise of their ministry.
    • Box 14: Some churches report a church-designated housing allowance in this box. This is not mandatory, however.

    Workers’ Compensation

    Excerpts from Church Treasurer Alert, September 2002:

    “Workers’ compensation laws have been enacted in all fifty states. These laws provide compensation to employees as a result of job-related injuries and illnesses. The amount of compensation is determined by law and generally is based on the nature and extent of the employee’s disability. In exchange for such benefits, employees give up the right to sue an employer directly. Fault is irrelevant under workers compensation laws.”
    Church employees are covered by workers’ compensation laws in all states in the Diocese of the West.
    "In a compulsory state, an employer that fails to obtain workers’ compensation insurance will ordinarily be subject to a lawsuit by an injured employee, or may be treated as a “self-insurer” and be liable for the damages specified by the workers compensation law."
    Key Point: "Failure to purchase workers’ compensation insurance can result in a significant uninsured risk….In the case of a fatality, the damages can be in the hundreds of thousands of dollars."
    “An injured employee may be able to sue the church for damages in a civil lawsuit. Unlike workers’ compensation benefits, there is no limit on the amount a court can award in a civil lawsuit. The damages a court awards in a civil lawsuit will not be covered under most church insurance policies. Often, general liability policies exclude employee injuries on the assumption that they are covered in a workers compensation policy."