Tips for churches on how not to mess up your payroll taxes

Image courtesy of Adobe Stock.

Image courtesy of Adobe Stock.

Church Law & Tax, site for Richard Hammar’s writing on issues affecting churches, recently tweeted about their presentation of Five Common Payroll Issues Ministries Face Slideshow.

If you are in a church, or any parachurch ministry for that matter, it would be worth your time to read through the slide deck.

I’ll guess this is old news for most people. However, if you see something that you don’t understand or seems contrary to how you are doing things, you might want to take that as a warning you ought to do some research. I’ll mention just a few highlights.

Remember to report the following as income (see slides 8 and 9):

  • Love gifts
  • Christmas or retirement gifts
  • Social security tax paid to pastor by church
  • Personal use of church car
  • Several other items  you might not think of as taxable but actually are reportable – seven items are specifically mentioned

I perceive there may be some noncompliance on reporting those items. There is a serious downside from not reporting income: underreporting income makes any unreported items an excess benefit, which could result in serious penalties to the pastor and the church leadership personally if the IRS figures out the church underreported income. My suggestion: don’t go there.

There are different rules that apply to clergy for tax treatment of housing allowance, self-employed status, paying taxes under SECA instead of FICA, and possible exemption from social security taxes. If you don’t know those rules, might want to do some research.

Slide deck recommends keeping payroll tax records for at least four years after the last reports for a year have been filed.

The five areas addressed in the slidedeck are:

  • Clergy compensation
  • Employee or independent contractor – what difference does it make?
  • Employees who perform various roles
  • Using stipends as compensation
  • Recordkeeping

The slidedeck is the presentation material for a webinar, so most of the content is not listed on the slides. However, it is very much worth your time. The slides were posted on 9/25/13, but I didn’t notice any of the comments on the slides which would need to be changed if the presentation was given today.

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