Learn about the clergy and church payroll in Online Payroll.
There are specific things to know when filling out Online Payroll for a clergy or church. In this article we provide the information you need to complete Online Payroll.
For additional information: Most mainstream denominations have referrals available to help. You can also refer to IRS Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers.
Church tax status
As nonprofit organizations most churches are exempt from federal unemployment tax (FUTA). Intuit Online Payroll users should select 501(c)(3) at the Account level to indicate no FUTA tax liability. This will also prevent prompting for the annual 940 form.
Ministers as employees
Ministers who are paid a salary are generally considered employees for personal income tax (PIT). They can receive taxable allowances for vehicles or education and participate in pretax retirement plans and cafeteria plans. Reportable (taxable) PIT wages are shown in box 1 of Form W-2.
Ministers as self-employed
Ministers who don't want withholding should select Do Not Withhold (DNW). They are generally considered self-employed for Social Security and Medicare taxes.
Wages aren't subject to Social Security and Medicare withholding. and aren't reported in boxes 3 and 5 of Form W-2. No Social Security and Medicare withholding shows in boxes 4 and 6. The minister (or the church on the minister's behalf) must file a Self-Employment Contributions Act (SECA) return, and pay self-employment taxes.
In Intuit Online Payroll mark the employee exempt from Social Security and Medicare taxes. Intuit Online Payroll doesn't support SECA reporting.
Ministers are required to make estimated payments for their Self-Employment Contributions Act (SECA) liabilities. If they choose, and the church agrees, they can have additional amounts withheld as PIT from their salaries to cover their SECA tax.
In Intuit Online Payroll enter the amount of additional tax to be withheld as federal PIT additional amounts. All withheld amounts are reported in box 2 on Form W-2. Some churches pay the Self-Employment Contributions Act (SECA) tax as part of the overall compensation package. If so, the amounts must be grossed up and added to the minister s salary.
In Intuit Online Payroll calculate the gross-up amount separately and add to salary. Or include the gross-up amount in a separate allowance.
All states either exempt clergy wages from taxation or follow the federal rules.
Clergy housing allowance
Users must verify state reporting of clergy housing for their location before using Intuit Online Payroll clergy housing pay types.
Many churches pay some or all of the minister's housing and utilities as part of the overall compensation package.
These amounts called clergy housing or parsonage allowance can be in cash or in-kind. They aren't reportable for PIT, but must be included in SECA income.
In Intuit Online Payroll use Clergy Housing-cash, or Clergy Housing-in-kind to pay or report PIT exempt and SECA reportable clergy housing allowances. These pay types aren't allowed for any other type of housing payment.
Use the Clergy Housing cash pay type if you provide funds to the employee to pay for their housing and related expenses. Amounts entered for this pay type will be included in net pay.
Use the Clergy Housing-in-kind pay type if you pay for the housing and related expenses on the employee's behalf. (No funds are provided directly to the employee.) Amounts entered for this pay type will not be included in net pay. The taxability of the two clergy housing pay types is identical.
Housing and utility allowances are reportable for Self-Employment Contributions Act (SECA). They don't show in box 1, 3, or 5 of Form W-2.
The church can, optionally, report the housing amounts in box 14 of Form W-2. The minister includes these amounts on Schedule SE when calculating SECA tax on his or her annual 1040 filing.
In Intuit Online Payroll all amounts reported as clergy housing show in box 14 Form W-2. If the church doesn't want the values reported in box 14, they shouldn't use clergy housing. Instead they can make cash payments with reimbursement. These aren't reported on the W-2 form.
Follow these steps to add a clergy housing pay type
- From the left menu, select Workers, then Employee.
- Select the employee's name. Then select Edit employee.
- Under How much do you pay this employee? select Add additional pay types if you haven't selected any other pay types. Or select the pencil icon if you have.
- Select either the Clergy Housing (In-Kind) or Clergy Housing (Cash) checkbox. If the pay type is not in the Additional pay types list, select Even more ways to pay this employee to see more pay types. And select it from there.
- Select Ok.
|Note for Intuit Online Payroll and QuickBooks Online Payroll customers:
We do NOT support form W-2 for a clergy employee who receives a housing allowance, but no regular wages. File form W-2 manually.
Allocate tax exemptions for a clergy employee
Do you need to exempt a clergy employee from Social Security and Medicare (FICA) and/or FUTA taxes? Follow these steps:
Intuit Online Payroll
- Select Employees.
- Select the employee's name.
- In the Taxes and Exemptions box, select Edit.
- In the Exemptions section, select Edit.
- Select the appropriate tax exemptions.
- Select Save.
- Select Ok.
QuickBooks Online Payroll
- Select Workers > Employees.
- Select the employees name.
- Select Edit employee.
- In question What are the employees withholding, select the edit (pencil) icon.
- Select the Tax exemptions drop-down.
- Select the appropriate tax exemptions.
- Select Done.