Understanding Form 941 

Churches file Form 941 four times a year to report income taxes, social security tax, or Medicare tax withheld from employees’ paychecks. As the IRS explains:

“Federal law requires you, as an employer, to withhold certain taxes from your employees’ pay. Each time you pay wages, you must withhold — or take out of your employees’ pay — certain amounts for federal income tax, social security tax, and Medicare tax. Federal law also requires you to pay any liability for the employer’s share of social security and Medicare taxes. This share of social security and Medicare taxes isn’t withheld from employees.”

The government requires employers to pay these withholding taxes on a monthly or semiweekly schedule, not in a lump sum. The end result of completing Form 941 is knowing your exact employment tax responsibilities for the quarter that the information it asks of you covers. Your monthly or semiweekly deposits should add up to this amount. If you are underpaid, you’ll owe the IRS more money. If you overpaid, the IRS will issue a refund or credit the amount toward future remittance obligations.

Completing Form 941 (Employer’s Quarterly Federal Tax Return) is never a snap. Now it’s gotten more challenging as the IRS has added more lines and new complexity to the form. 

When is Form 941 due?

Form 941 is not part of an annual tax return. Rather, this important document must be submitted quarterly (four times a year). File it within one month after the end of each calendar quarter. This translates into deadlines of:

• Quarter 1: April 30 (covering January, February, March)
• Quarter 2: July 31 (covering April, May, June)
• Quarter 3: October 31 (covering July, August, September)
• Quarter 4: January 31 of the following year (covering October, November, December)

These special rules include the following:

Ministers are self-employed for Social Security with respect to their ministerial services (see IRS Publication 517). While most ministers are employees for federal income tax reporting purposes (and thus should have a W2), they are self-employed for Social Security with respect to services they perform
in the exercise of ministry. This means that they pay the “self-employment tax” (SECA) rather than the employee’s share of Social Security and Medicare taxes—even if they report their federal income taxes as a church employee. It is incorrect
for churches to treat ministers as employees for Social Security and to withhold the employee’s share of Social Security and Medicare taxes from their wages.

A minister’s wages are exempt from income tax withholding. Wages paid to a minister as compensation for ministerial services are exempt from income tax withholding whether the minister reports income taxes as an employee or as self-employed. Ministers use the estimated tax procedure to pay their federal taxes unless they have entered into a voluntary withholding agreement with their employing church.”

How must a pastor remit their income and self-employment tax (SECA)?

Typically pastors submit quarterly estimate payments for both their income and self-employment taxes (SECA) to the US Treasury. This can be accomplished by using the 1040-ES form https://www.irs.gov/pub/irs-pdf/f1040es.pdf. Reporting and remitting income and self-employment tax is the pastor’s responsibility. This is a unique burden because most non-ordained employees do not have the same responsibility. Organizations, like churches, are responsible for paying payroll taxes for all non-ordained employees.

Contact Clergy Financial Resources to help you with the next steps.

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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

For more information or if you need additional assistance, please use the contact information below.

Clergy Financial Resources
11214 86th Avenue N.
Maple Grove, MN 55369

Tel: (888) 421-0101 
Fax: (888) 876-5101
Email: clientservices@clergyfinancial.com