Clergy and Non 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 as well as paying vendors and independent contractors. They must also withhold federal income tax, if requested by clergy, and Social Security and Medicare taxes for non-clergy employees.
All parish rectors should be classified as clergy employees for income tax reporting purposes. Medical Insurance paid by the church is only a deductible if a W-2 Form is submitted at the end of the year. Also, the
1. value of other various fringe benefits will be nontaxable;
2. audit risk is much lower;
3. reporting as an employee avoids the additional taxes and penalties often assessed against ministers who are reclassified as employees by the IRS;
4. the IRS considers most ministers to be employees; and
5. most ministers are employees under the tests applied by the IRS and the courts.
Clergy who fill in occasionally for the parish priest and have income from other sources may be classified as an independent contractor, however all of their compensation is reported as taxable non-employee income on a Form 1099. Use the IRS 20-factor test (Revenue Ruling 87-41) to determine if more of the factors indicate employee reporting status versus independent contractor status. Click here to view the IRS 20-factor test.
The reporting status of all non-clergy church staff should be confirmed using the IRS 20-factor test. Those who must be classified as employees must be given a Form W-2 at the end of the year. Casual independent contractors and volunteers who receive $600 or more must be given a Form 1099.
The risk of being audited is small. But it is much higher for self-employed persons and even higher for self-employed persons who receive only one or two Forms 1099-MISC (as is true for many ministers who report their federal income taxes under self-employed status).
Contents:
Clergy Compensation
Paying the Priest a Housing Allowance
Car Allowance
Paying and Reporting Employee Withholding o Withholding requirements each payday
Deposit requirements Monthly or Quarterly Federal Tax Deposits
State of California Deposits
Quarterly Federal Withholding Reporting Requirements
Quarterly Federal Withholding Reporting Requirements
Year-End Federal Withholding Reporting Requirements
Filling out Form W-2
Reporting Non Employee Compensation
IRS 20 Factor Test
Guidestone Tax Guide