Churches Doing Payroll
More Fun than You Can Imagine
How Does Your Church “Do” Payroll?
Pencil, calculator, paper and prayer?
Spreadsheet on the computer with embedded formulas?
Part of your accounting software program (ie Quickbooks)?
Payroll Service (Paychex, Gusto, ADP)?
What You Need Before the Math Starts
Hourly or Salary
versus
Exempt or Non-Exempt
Timesheets & Overtime
Payroll Taxes for all Church Employees
WA Labor & Industries or L&I/LNI
Worker’s Compensation for injury on the job
Based on Hours worked by each employee
Employer specific rate sheet based on claims
Both employee and employer taxes
Employer can pay employee portion
Reported quarterly online
Tax paid on minister as well as all other employees
Payroll Taxes for all Church Employees
WA Cares
An affordable long-term care insurance program
Can receive an exemption from tax is if employee submits completed paperwork and request for exemption is approved
Clergy are not exempt from tax and can benefit from fund
Based on gross earnings of employee
Employee portion: .58% of gross
Employer: No payment required
Employer can pay employee portion
Reported quarterly online
Started July, 2023 with 1st reporting next month
Payroll Taxes for all Church Employees
WA Paid Family & Medical Leave
For Serious Health Condition that prevents you from working or when you need time to care for a family member, bond with a new child or spend time with a family member preparing of military service overseas.
Up to 12 weeks with partial wage compensation
Clergy may receive benefits
Employee portion: 72.26% of .8% of gross wages for 2023
Employer: No payment required, < 50 employees
Employer can pay employee portion
Reported quarterly online
Must count clergy’s housing allowances in gross earnings for them to draw most amount in benefits
Payroll Taxes NOT for Church Employees
WA L&I: Unemployment Insurance
Unemployment benefits when an employee loses job through no fault of their own
Church may go through private insurer for unemployment benefits for church employees
Churches are not required to pay this tax
During COVID church employees could apply for unemployment benefits but not sure of present status
Previously required to have a signed statement from employee stating they know employer does not pay into state unemployment benefits
Post that employer does not pay into unemployment benefits.
Federal Payroll Taxes and the Clergy
Employee + Self-Employed = Headache
Federal Payroll Taxes and the Clergy
Federal Withholding tax
The church, as employer, does NOT withhold income tax from an ordained minister’s paycheck
CAVEAT! The pastor may REQUEST voluntary income tax withholding of a certain amount each pay period from their paycheck for withholding taxes.
Federal Payroll Taxes and the Clergy
Social Security & Medicare
Not taken from an ordained minister’s paycheck
It is illegal for the church to pay the pastor’s Social Security or Medicare taxes directly!
Federal Payroll Taxes and the Clergy
Considered as income to the clergy and must be reported as such
May be offered as a part of compensation package to help the pastor pay for self-employment taxes (15.3% of their wage)
Amount of SECA offset can be up to 7.6018%
SECA Offset
A type of compensation a church offers a minister to help offset the cost of self-employment taxes. Self-employment taxes cause clergy to pay taxes both as the employer and the employee.
Federal Payroll Taxes and the Clergy
Housing Allowance
Ordained ministers may request that Session categorize a portion of their compensation as a “Housing Allowance,” if they are not being given the use of a manse, as a part of their compensation package.
Recommend that each December, “Pastor’s Housing Allowance” be an agenda item for Session to clearly state for next budget year.
Session must note the exact amount of the pastor’s housing allowance in their minutes BEFORE the housing allowance can be claimed on the minister’s paycheck.
On W2, this amount will be reported in Box 14 with notation “Housing Allowance” and not included in Box 1 as income.
Can be changed but must go through process with Session before change shown on paycheck
Federal Payroll Taxes and Church Employees
Non-Clergy Church Employees
All non-ordained employees of the church are “normal” with federal payroll taxes like any other employer.
Only caveat is if the ordained minister is functioning in a role that does not require ordination, such as the custodian.
Federal withholding taxes based on income
Social Security taxes at 6.2% of income
Medicare taxes at 1.45% of income
Miscellaneous
403b Retirement Accounts: Don’t forget to subtract the income BEFORE calculating taxes and report this amount on W2 in Box 12
HSA: Same, not a part of taxable wage but reported in Box 12 for informational purposes
FSA: Not taxable as well, but not reported on W2
Questions?