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Church and Clergy Tax

If you are looking for church and clergy tax information, I think I can point you in the right direction ... as long as you understand two things:

  • I am not a tax advisor and this is not financial or tax advice.
  • I don’t know anything about taxes in countries other than the USA.

We have a saying in the USA that goes, "Only two things are guaranteed in life: death and taxes." You would think, then, that church and clergy tax information would be easy to find and simple to understand. Unfortunately, neither is the case.

I've attended or pastored seven different churches. Each one handled income taxes differently. As best as I can tell, none of them did anything illegal. But each managed church and clergy tax differently.

In my experience I learned that when it comes to church and clergy tax issues, three things are very important.

I follow these three guidelines closely, and to date, I haven’t been audited.

Zondervan 2013 Church and Nonprofit Tax & Financial Guide: For 2012 Tax Returns is the best pastor tax guide I know.

CAUTION!

There is a lot of false information out there about pastor and clergy tax. Church treasurers change over time and tax information gets passed on verbally and not always accurately.

Watch out if you hear yourself or someone else make statements like:

  • "Pastor Jones always had us do it this way."
  • "When Tim was treasurer he didn’t keep those records."
  • "That’s not the way we did it last year."
  • "Do we give pastor a W2 or a 1099?"
  • "Do we put parsonage allowance on pastor’s tax form?"

When it comes to church and clergy tax, don't guess ... don't assume. Make sure you know.

How can you be sure?

Follow the three guidelines I mentioned above:

  • Read and follow a reputable clergy tax guide.
  • Choose an expert advisor for tax preparation.
  • Know where to find clergy tax help when you need it.

Willoughby & Associates Inc.

Specializes in Preparing Clergy Income taxes and Congregational Payroll Processing

Call 1-866-261-6703
PastorTaxes.com
WilloughbyInc.com
Email: info@willoughbyinc.com

Your Pastor and Social Security Tax

In the USA, pastors don’t have to pay social security tax on income received in return for performing pastoral duties … as long as they first file the appropriate paper work with the IRS.

I’d like to make three observations about pastors and social security.

  • Pastors can’t opt out just because they don’t want to pay social security taxes. They must be opposed to receiving secular/government support (retirement) for doing religious work. Your pastor has to agree to a very strong statement of conviction before the IRS gives an exemption.
  • Pastors who opt out of social security must be disciplined enough to put aside and invest the 7.5% of their income that would have gone to social security. Churches can help their pastor do this by deducting 7.5% from the pastor’s paycheck and sending it directly to the investment of the pastor’s choice.
  • Churches should pay half of a pastor’s social security tax … just like all other businesses do. Some churches I’ve been in like it when the pastor opts out of social security because they don’t have to pay the employer’s 7.5%. But if you adopt this attitude in your church you are cheating your pastor out of 7.5% of his retirement. If he earns $20,000 per year, you are taking $1,500 out of his retirement fund per year. And if your pastor stays at your church for five years, you’ve reduced his retirement by $7,500 plus interest. You were going to pay the 7.5% anyway if your pastor was involved in social security. You’re not losing anything by contributing that amount to a retirement fund.

A FREE Resource

It's rare these days to find anything of value for free. So I'm quite skeptical when I hear about something being offered for nothing. However, I've discovered an exception. Vickey Boatright is an accountant who has put together an incredible web site with church and pastor tax information. In addition, she has created several valuable financial spreadsheets that you can download for free. I highly recommend you take a look at the information she has available. Her site is appropriately titled, Free Church Accounting.

Conclusion

Church and clergy tax can seem like a very complicated and strange process. But if it weren’t complicated and strange it wouldn’t be from the IRS!

I am not a tax adviser, and what I’ve said here is not financial or tax advice. But I share my own experience in order to point you toward people and resources that can help you with church and clergy tax preparation.

Take special note of the caution I mentioned above, and carefully consider your role in your pastor’s social security situation.

And as you pursue church and clergy tax information, remember...

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