Pastor - how is the church supposed to report income to you; and how are you to report your taxes on your return?

Under the current tax code, Pastors have a unique standing, as defined by the Code.  A Pastor is considered to be "dual status"by government tax definitions.      You appear to be an employee of the church to the casual observer;

     Yet you must file your taxes as a "self-employed" individual. 

I suggest a few moments be taken to read this blog for understanding about this matter. [This will actually be presented in a serial of blogs to follow.]

                           First-the church's part.

If the Pastor is the only paid person for the church, the church should not enter into the full payroll system, requiring quarterly reporting in W-2 wage matters.

[Please note here that 1099 reporting may need to be done at year-end; and this will be discussed in future blogs.]

The church needs to pay the Pastor, according to some approved budget.  His "pay" is to be the gross amount divided by the payment interval, such as weekly, or bi-weekly, etc.  This "pay" can include an amount the Pastor has named to be "housing allowance" that the church (or church leadership) acknowledges in writing at the beginning of each year.  [Housing allowances procedures/rules will be discussed in a later blog also.]

If in the full reporting payroll system because of other employees, the church may withhold income taxes, per the Pastors' request, indicated by having a W-4 on file for him and all employees.  The W-4 simply provides employer (church) with name, address, SS#, marital status, number of dependents, and special circumstance items that may/will affect how much taxes and what type of taxes the church may withhold and remit to the IRS and/or Social Security Admin.

[These steps would require someone (Treasurer or financial secretary) to be knowledgeable about required and timely  reporting of this to government.]

Romans 13 requires all of us to comply with law authority of the country /state/

city in which we live---whether we like it of not.  Note that quarterly filing of 941 information and timely remittance of taxes withheld to proper agencies is required.  If questions in this area, please contact me.

If Pastor is the only paid "employee", the above processes are largely not in effect.  However, some year-end work is required.  The church should supply compensation data to Pastor at the end of the year, using Form W-2 to do so.  [There is much confusion about this within our churches and this is often expressed in debates, arguments, decisions at the "I think if should be..." level ---without apparent knowledge of the tax code information available...the Law.]

Don't forget to visit this site regularly.
 

If you are the Pastor or the financial person for your independent Baptist church, I encourage you to learn a little about accounting and financial reports from on-line seminars and/or some community college courses.  As the Biblical steward of the funds given by Christians for the work of Christ in your community and for world missions, you should desire to know basic accounting and tax issues that affect your church.

Another step of stewardship would be a periodic review of your systems and procedures used for the accounting processes of the church.  If in the payroll system, there are many things to be aware of also.  These services provided by independent confidential ministries, as well as local accounting firms (although these may cost more money), are needed in this day and time. The service that Pulpit and Pew Finances ministry offers is indeed one such service available to you.  I am a faith consulting missionary advising in both accounting procedures and tax matters, including tax-benefited Pastor compensation packages.  Elsewhere on this website you can see the services provided.  Things I have seen in the five years of ministry compel me to strongly encourage having some outside review done of your records and procedures.  IT DOES NOT HAVE TO BE ME...BUT PLEASE GET SOMEONE KNOWLEDGEABLE FROM THE OUTSIDE TO COME IN TO PERFORM THESE SERVICES FOR YOU.

Resistance to such counsel may not be a problem - or it may indicate there are real problems in this area.  Obviously, your main ministry is preaching and witnessing so that souls can be saved.  My admonition here is to not let something in money matters eventually hurt or even destroy a ministry.  You are aware this has happened.

I intend to have a blog posting at least once per month to inform and/or update those that have been in touch with me, or those who find this website, about necessary things and current topics, including tax matters, which often change related to the clergy.  Next posting will likely be tax related - and probably about tax issues to be aware of related to the Affordable Care Act.  It is a dynamic time for the IRS related to church tax matters.  Please visit the blog and stay more up to date.

I am in the process of setting up a blog page.  I plan to share comments on current issues, as well as some best procedure memos for financial aspects in the accounting management of a church.  Be back again soon...