Payroll Tax Form 941 Due Dates:
Submit a Form 941Employers Quarterly report to the IRS according to the following schedule:
- First quarter ends March 31…report due April 30
- Second quarter ends June 30…report due July 31
- Third quarter ends Sept 30…report due Oct 31
- Fourth quarter ends Dec 31…report due Jan 31
Note: there is an annual employer reporting form however, you cannot use that form unless the IRS has informed you to use it. All other filers must use the payroll tax Form 941.
See line by line instructions on completing a 941 form for a church on page 108 of theChurch Accounting How To Guide.
- how to withhold payroll taxes
- what churches are required to pay and withhold
- step by step instructions on completing year end filings such as a W-3 and W-2
- much more…
Payroll Tax Forms: Form 941
An IRS Form 941 is one of the federal payroll tax forms used to report:
- number of employees
- total wages paid during the quarter
- withholding and total payroll taxes paid during the quarter
Instructions on how to calculate payroll taxes. Note: For Canadian payroll tax forms..see Church Treasurers of Canada
Tax Rules Unique To Ministers
Those meeting the definition of minister face a unique set of tax rules in three areas. Ministers are:
- Eligible for the housing allowance and parsonage exclusion
- Considered self-employed for Social Security tax purposes and
- Exempt from federal income tax withholding.
Sec. 107 provides an exclusion from gross income to the extent that a ministers employer pays his or her housing costs. The employer can provide housing by paying housing costs or providing cash that the minister uses to pay these costs . Housing costs include rent, mortgage payments , utilities, maintenance, insurance, and furnishings.
This exclusion is the most attractive benefit available to ministers because housing costs represent a high percentage of income. Most state income tax laws also permit an exclusion, increasing the tax savings. Most rulings and case law related to ministers concern the claiming of this exclusion.
The employer must designate the amount of the housing allowance in advance. It is limited to the lesser of:
- The amount designated by the employer
- The fair rental value of the residence or
- The actual expenses incurred.
Classification as Employees or Independent Contractors
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Unrelated Business Income Taxes
Nonprofit organizations and churches do not have to pay income taxes on unearned income. This guideline includes donations, grants, gifts to the organization, and investment income. However, they are still subject to income taxes on unrelated business income for the profits they earn.
This tax is called the unrelated business income tax . Churches who earn an unrelated business gross taxable income of $1,000 or more in a tax year must file Form 990-T, Exempt Organizations Business Income Tax Return, for that tax year. Income earned from thrift shops, volunteer work, donor lists, low-cost giveaways, and advertising is not subject to UBIT. For income to be classified as UBIT, the activity must:
- Constitute a trade or business
- Be regularly carried on
- Not be substantially related to the churchs exempt purpose
UBITs can also hurt a churchs tax-exempt status. Generally, if more than 15 percent of the religious groups total earnings come from unrelated business income, the organization is at risk of losing its tax-exempt status. There are two exceptions for UBITs, though:
Are Ministers Considered Employees Or Self
Generally, duly ordained, commissioned, or licensed ministers of a church in the exercise of their ministry are considered employees for federal income tax reporting purposes. Yet, for these individuals, youre not required to withhold income tax from the compensation you pay.
Instead, the income a minister earns in performing their services in the exercise of their ministry is subject to Self-Employment Contributions Act taxes unless they are exempt. That includes any salary or fees for things like performing marriages, funerals, and baptisms. An employee minister, however, may enter into a voluntary withholding agreement with your church by completing Form W-4. In that case, you can withhold not only income taxes but also estimated self-employment taxes.
Not only are income taxes not typically withheld, clergy are always self-employed for Social Security purposes, so you wont withhold the employee share of FICA from their income either.
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Reevaluating Parsonage Allowance Designation
It is a best practice for the minister, rabbi or cantor to reevaluate on an annual basis their budget for parsonage as the amount of money a person spends on his or her home may change as a result of a move to a larger or smaller home, renovations, major appliance purchases or the purchase of furniture. Since one of the limitations of parsonage is the amount of the parsonage declaration, we recommend slightly overestimating the parsonage designation. If the amount actually spent is less than the declaration of parsonage then the excess amount is subject to income taxes. However, this will prevent the minister from maximizing his or her parsonage allowance.
Do I Have To Pay Church Employees Overtime
While ministers arent covered under the Fair Labor Standards Act , other church employees may be subject to the laws minimum wage and overtime rules if they meet the criteria for either enterprise coverage or individual coverage.
Most churches wont meet the enterprise coverage test because they have less than $500,000 in revenue other than from donations or grants. However, some employees may meet the individual coverage test. So, for example, if an employee regularly sends emails or newsletters to individuals in another state or orders teaching materials from out of state, that may be sufficient to get them covered.
Even if the FLSA applies under the individual coverage test, employees may be exempt because the law excludes most executive, administration, and professional workers. If, for instance, you have an HR manager at your church who directs two HR staffers, the manager may be exempt. The Department of Labor offers a lot of guidance on these exemptions that can be helpful in helping you understand which employees the FLSA covers.
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Do Churches Pay Taxes In Australia
In Australia, religious organizations dont have to pay taxes. In this category we see bodies such as the Anglican and Catholic Churches, and smaller ones such as the Seventh Day Adventist Church, Exclusive Bretheren Church, and the Church of Scientology. Explicit compliance with the Charities Act 2013 can be found on the Charities Hub.
You Asked: Do Churches Pay Employees
The simple answer is yes paid church employees are considered employees by the IRS for income tax purposes. The answer to the question, do churches pay payroll taxes, is more complicated when it comes to ministers, pastors, and clergy members. Most ministers have a dual tax status.
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How Is A Pastors Salary Calculated
According to the study, the biggest factor in determining pastor salary is the church budget and worship attendance. The larger the congregation, the more money in the church budget. The study states that each additional 1,000 attendees generally result in the pastors salary increasing by $8,000.
Social Security & Medicare Tax Withholding
Non-minister employees pay into the Social Security and Medicare programs through the Federal Insurance Contributions Act . The FICA/Medicare program requires an employer to withhold one-half of the tax, the employees contribution, and match the other half of the tax, the employers contribution. Ministers, performing ministerial duties, do not and cannot participate in the FICA program. This is not an elective decision for the minister or the church, but a decision mandated by law.
Ministers pay into the Social Security system through the Self Employment Contributions Act . Ministerial earnings are, as defined by law, self-employment income. The result is that a church is prohibited from withholding and matching Social Security/Medicare taxes for a minister as required for other employees. Ministers report earnings on Schedule SE with the Form 1040 unless they have an approved Form 4361.
Elaines Extra: Ministers should estimate their self-employment tax and include it with the income tax paid through withholding of federal income tax by the church or in their quarterly estimated tax payments.
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Option #: Quarterly Estimated Payments & Employer Withholding
The second option is to split the responsibility with your church. You have them withhold income taxes from your paycheck and you handle the SECA taxes on your own. You calculate your expected SECA taxes quarterly and pay them. Then, at the end of the year, you file your tax return and make sure to count the taxes that your employer withheld and the estimated payments you made when determining if you get a refund or owe more.
Do Church Leaders Pay Taxes
In most cases, the church is a tax-exempt entity. That means the church, who is the ministers employer, does not withhold income tax from the ministers wages. In short, a minister must pay taxes like a self-employed worker, but they are not eligible for all the tax benefits many self-employed workers enjoy.
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Mechanics Of Declaring Parsonage
Parsonage is not an automatic right. It must be awarded by the ministers employing organization. As such, it is crucial that the minister ensure that the organization is entitled to award a parsonage based on its tax exempt status. Churches, synagogues and other houses of worship are automatically granted this right by the Internal Revenue Service even if they have not have officially registered the charity with the IRS.
Once it is established that the minister is eligible for parsonage, the formal awarding has to be made part of the church or synagogue records and included in the minutes of the board of directors or the equivalent. The minister, rabbi or cantor should also get this eligibility in writing for his or her records in the event of an audit.
Definition Of Minister Under The Regulations
The regulations under Secs. 107 and 1402 provide guidelines for determining who qualifies as a minister. Both sections state that a minister is distinguished by the duties he or she performs. The regulations state that the duties of a minister include
the ministration of sacerdotal functions and the conduct of religious worship, and the control, conduct, and maintenance of religious organizations , under the authority of a religious body constituting a church or church denomination.2
include the performance of sacerdotal functions, the conduct of religious worship, the administration and maintenance of religious organizations and their integral agencies, and the performance of teaching and administrative duties at theological seminaries.
The definitions above identify the following categories of people who qualify as ministers:
- Those in traditional clergy roles who typically perform sacerdotal functions and conduct worship
- Those who work for secular organizations to the extent they perform sacerdotal functions and conduct worship
- Those who control and maintain religious organizations at the local church or denomination level and
- Teachers and administrators at seminaries.
In the last two examples, the taxpayers are ministers based mainly on their conduct and maintenance of a denomination, not because their daily tasks are those of a typical minister.
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Do Church Employees Pay Taxes
If you work for a church, do you pay taxes? The simple answer is yes paid church employees are considered employees by the IRS for income tax purposes.
But what payroll taxes do churches pay, exactly? Churches are required to withhold income taxes from employees who are not ministers, and their income should be reported on a Form W-2 just like an employee in any other industry. Churches are exempt from paying federal unemployment taxes for all employees.
The answer to the question, do churches pay payroll taxes, is more complicated when it comes to ministers, pastors, and clergy members. Most ministers have a dual tax status. Their ministerial income qualifies them as self-employed for Social Security purposes, and they are considered church employees for income tax purposes.
Do Churches Pay Payroll Taxes for Pastors?
Churches are not required to withhold income taxes from ministers, even if they are considered an employee. However, churches should still issue ministers a Form W-2, even though they are considered self-employed because of their dual tax status.
What Taxes Are Churches Exempt From Paying
Churches and religious organizations are generally exempt from income tax and receive other favorable treatment under the tax law. To receive this treatment as a 501 organization:
- You must be organized and operated exclusively for religious, educational, scientific, or other charitable purposes
- Your net earnings may not benefit any private individual or shareholder
- No substantial part of your activity may be attempting to influence legislation
- You may not intervene in political campaigns
- Your purposes and activities may not be illegal or violate fundamental public policy
If you are a church and meet all these requirements, you are automatically considered tax exempt but you may still want to apply for tax-exempt status to show others like contributors to your church that you qualify for the related tax benefits.
If you are any other type of religious organization and want to be tax exempt, youll need to apply to the IRS for the status using Form 1023 unless your gross receipts dont exceed $5,000 annually.
Keep in mind that, even if you are considered tax exempt, certain income may be subject to tax, such if the activity constitutes a trade or business. For example, many churches sell advertising in their weekly bulletins. Generally, revenue from the sale of this advertising is unrelated trade or business income and is taxable. Or, if your church operates a parking lot that charges fees to the general public to use, those fees would be taxable.
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Do I Pay Taxes If I Work For A Church
If you work for a church, do you pay taxes? The simple answer is yes paid church employees are considered employees by the IRS for income tax purposes. Their ministerial income qualifies them as self-employed for Social Security purposes, and they are considered church employees for income tax purposes.
Do Churches Pay Employment Taxes
Payroll taxes are complicated enough, but church payroll taxes present unique nuances. How does the IRS define a church? How are clergy members different than church employees? Do churches pay payroll taxes? Which workers qualify as employees and which are considered independent contractors?
This article provides an overview of what payroll taxes churches pay and how compliance is different for religious institutions. Well also discuss how the right payroll and tax compliance partner can streamline this process.
How APS Can Streamline Your Church Payroll
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Irs And Judicial Determinations
The above examples from the regulations notwithstanding, those performing tasks outside traditional ministry roles have a more difficult time qualifying as ministers. This issue has come up in court cases and IRS rulings involving employees in religious and secular organizations. This section summarizes how the Tax Court has interpreted the definition of a minister.
Employees of Churches
A plethora of court cases has applied the regulations to various situations to determine who meets the definition of a minister. Most of these cases address whether those employed by local churches are ministers.
The Tax Court provided what is probably the most widely cited and useful analysis of the law in Knight.8 Knight was not ordained and could not administer the sacraments. However, he conducted worship, was licensed, and was considered a spiritual leader in his church. The court held that Knight qualified as a minister, applying a five-factor test initially established in Wingo.9 In that case, the Tax Court set forth the following attributes and duties of a minister:
- Is ordained, commissioned, or licensed
- Is recognized by the religious body as a spiritual leader
- Conducts religious worship
- Administers sacraments and
- Is involved in the control, conduct, or maintenance of a religious organization.
Employees of Church-Affiliated Organizations
Employees of Nonchurch Organizations
Do Pastors Pay Income Tax
Regardless of whether youre a minister performing ministerial services as an employee or a self-employed person, all of your earnings, including wages, offerings, and fees you receive for performing marriages, baptisms, funerals, etc., are subject to income tax.
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Churches Can Withhold Income Taxes For Pastors
Third, unlike SECA taxes, churches have the option to withhold income taxes for pastors. It is not required. Every other employer is required by law to withhold income taxes for their employees, but pastors are exempt from that. So, churches dont have to withhold income taxes for their pastors but they can.
Option #: Quarterly Estimated Payments
Your first option is to handle everything on your own. Your church withholds nothing and pays you your full salary. Then you calculate your expected tax liability each quarter and pay your estimated taxes. At the end of the year, you file your tax return to see how accurate your estimates were and either get a refund or owe a little bit more.
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Does A Pastor Get A W2 Or 1099
Even though a minister receives Form 1099-MISC, he or she may be an employee who should receive Form W-2. A ministers earned income is net self-employment income from Schedule SE minus one-half of self-employment tax plus any nonministerial wages. Earned income includes a parsonage allowance.