File this form by the income tax return due date for the second tax year in which a minister’s net earnings from self-employment are at least $400. These two years do not have to be consecutive, and the rule only applies if the net earnings came from performing ministerial services. All church employees who are not ministers should complete IRS Form W-4, Employee’s Withholding Certificate, when hired.

Five Facts To Consider BEFORE Hiring A New Staff Member

• A pastor will sometimes expense wardrobe purchases meant for the platform.
• It can run payroll, pay employees using direct deposits and checks, and handle federal, state, and local taxes.
• Religious institutions have unique characteristics and obligations that must be considered when managing payroll and tax compliance.
• QuickBooks makes staying compliant simple with HR support, powered by Mineral, Inc.
• Discover how to foster ethical leadership in religious institutions.
• Plus, our payroll advisors can explain the church and clergy tax rules clearly and simply, and answer your questions, so you feel confident that you’re in compliance.

To navigate these complexities, religious institutions must adopt a specialized approach to payroll. This involves using tailored church management software solutions and financial strategies that consider the specific needs and challenges of managing church staff wages. Another wrinkle is that Pastors don’t have to pay federal income tax on their housing allowance. However, they do have to pay their self-employed taxes on that income.

How do tax exemptions and laws apply to clergy and church employees?

Regarding senior pastor compensation, salaries vary significantly based on church size, location and denomination. As of January 2025, the average annual salary for a senior pastor in the United States is approximately $109,180. However, this range can fluctuate, with wages typically falling between $71,926 at the lower and $136,881 at the higher end. Even benefits like clergy housing allowances or retirement plans can vary based on how denominations prioritize financial bookkeeping resources.

• In addition to standard benefits such as healthcare and retirement plans, church employees may receive perks such as housing allowances, transportation reimbursements, and tuition assistance.
• One primary factor differentiating church payroll from other payroll systems is the reliance on contributions from the congregation and other donors.
• A stipend is a small salary (usually in the education world) to cover expenses for someone like an intern.
• Churches must also withhold employee contributions toward these taxes, reporting and remitting them to the IRS in the same manner as other employers.
• If, for instance, you have an HR manager at your church who directs two HR staffers, the manager may be exempt.
• Be very careful when offering financial compensation to those serving your ministry on a volunteer basis.

Church Giving and Staff Wages

It’s also important that the designated housing allowance is used in the year it’s received; it can’t be rolled over to future years. The amount must be reasonable and can’t exceed adequate compensation for the services a minister provides. And just a reminder, these housing payments may be used to avoid income tax, but not SE tax. When it comes to deducting money for federal and state income Medical Billing Process taxes, you are required to do so for ministers and other clergy. You should provide them with a W-2 form at year-end depending on the type of services they provide for the church (for example, delivering a regular weekly sermon versus officiating a wedding).

Conclusion: Balancing Tax Obligations and Religious Freedom

Overall, the intuitive dashboard and interface, ease of use, and efficient payroll tools make this a reliable church payroll service. With our Payroll solution, you can pay staff, handle taxes, and stay church payroll compliant in all 50 states—without needing a separate service or complicated calculator. Run payroll right from your dashboard, with direct deposit and tax filings built in. Manystates also grant exemption to churches from state unemployment taxes.

Proponents of tax exemption stress its importance for fostering community development and social welfare through the dedicated services churches provide. Ultimately, maintaining open dialogue surrounding these issues is crucial for nurturing a society that values both tax obligations and religious freedom. In recent years, calls for tax reform have intensified, with advocates for change pushing for greater oversight and regulations regarding tax-exempt organizations. As discussions surrounding the efficacy and necessity of tax exemptions for churches grow in prominence, organizations and legal experts are weighing in on both sides of the argument. The debate centers around whether or not religious organizations should continue receiving tax exemptions and the ramifications such a change may have on their operations. The Internal Revenue Service, the Illinois Department of Revenue, and local authorities require timely filing and reporting by employers.