Guide
Church treasurer's guide to minister pay
Most clergy tax errors begin with the church's payroll set-up. Here is how to handle a minister's pay correctly.
1. Confirm the person is a minister
Special rules apply only to ordained, commissioned or licensed ministers performing ministerial services. Check the credential and the duties. See who counts as a minister.
2. Treat the minister as an employee for income tax
- Issue a W-2, not a 1099, for salary.
- Income tax withholding is not required, but the minister may request it on Form W-4.
- Do not withhold Social Security and Medicare (FICA) from ministerial pay. The minister pays self-employment tax directly. See dual tax status.
3. Designate the housing allowance in advance
The board must adopt the designation before the pay period it covers, and record it in the minutes. A good practice is to do it every December for the next year.
RESOLVED, that of the total compensation paid to [Name], for ministerial services in calendar year [Year], $[Amount] is designated as a housing allowance, to be used to provide a home, effective [January 1, Year]. Any portion not used for that purpose is taxable to the minister.
- Use a dollar amount, not just a percentage.
- Amend only for future pay periods, never retroactively.
- The minister can use the request letter generator to propose an amount.
4. Report it correctly
- W-2 box 1 generally excludes the designated housing allowance. The minister, not the church, determines the actual excludable amount on their return and reports any non-excludable excess as income. Show the designated amount in box 14 or in a statement, according to your payroll provider's practice.
- Ministers include the allowance in earnings on their Schedule SE.
5. Consider an accountable reimbursement plan
Reimbursing ministry expenses under a written plan keeps them out of taxable pay. See accountable plans.
6. Model the total package
If the church adds an allowance toward self-employment tax, that allowance is itself taxable pay. Use the compensation package planner to find the true cost.
Annual calendar
| When | What |
|---|---|
| December | Adopt next year's housing allowance designation and review the compensation package. |
| January | Issue W-2s by the deadline and confirm no FICA was withheld on ministerial pay. |
| Quarterly | Remind the minister of estimated tax dates, and process any requested withholding. |
| Year-end | Compare housing spent against the designation, and keep records for the file. |