W-4 Withholding Calculator for Clergy

W-4 Withholding Calculator for Clergy According to IRS rules, income tax withholding for ministers is voluntary.  If you do not complete a W-4 form, or if you indicate “exempt”, no federal tax will be withheld, and you should make quarterly estimated tax payments.  Alternatively, you can complete Form W-4 so that your church withholds a…

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Are Church Musicians Employees?

Are Church Musicians Employees? If your church pays musicians to perform during services or other events, you’ll need to determine if they are employees or independent contractors. The biggest distinction between W-2 employees and 1099 workers is the amount of control you have over them. With a W-2 employee, you have the right to direct the…

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Understanding Form 941

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…

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Employees Versus Independent Contractors

Employees Versus Independent Contractors One of the most common employment mistakes that churches make is misunderstanding the difference between an employee and an independent contractor. Each employee should receive a Form W2 from the church each year. Employees are subject to a wide array of employment laws and tax requirements.  On the other hand, each…

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Ministers Versus Non-Ministry Employees

Ministers Versus Non-Ministry Employees  Churches should make a careful distinction between their paid workers who are acting as ministers versus those who are non-ministry employees. There are several considerations that can only apply to those who qualify as “ministers.” First, ministers can receive a clergy housing allowance, if properly designated, which shields a portion of…

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Can employees claim “exempt” on W-4?

You use a Form W-4 to determine how much federal tax withholding you need from your paycheck. Form W-4 tells an employer the amount to withhold from an employee’s paycheck for federal tax purposes. When you file as exempt from withholding with your employer for federal tax withholding, you don’t make any federal income tax payments during the year. (A taxpayer is still…

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Ministry Expense Reimbursements

Church employees may incur a number of legitimate business expenses in the completion of their duties.  These expenses may include travel costs, mileage driven, business meals, subscriptions to ministry periodicals, home office equipment, education related to business, mobile phone charges, and entertainment costs. While the precise details of what does and does not qualify as…

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5 Questions on Church Payroll

 Setting up and managing payroll for a church can be complex. There are several questions a church should ask in order to stay compliant with tax and legal requirements.  Question 1: Does the church follow standard employment protocols? Like any employer, a church should obtain and keep standard information and documents (including Form W-4 and…

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Which form do we use – 1099-MISC or Form 1099-NEC

The IRS issued two new forms for the 2020 tax year – Form 1099-NEC and a revised Form 1099-MISC. The newly reintroduced Form 1099-NEC is used to report payments for nonemployee compensation (NEC) that were previously reported on box 7 of Form 1099-MISC. Background The IRS reported confusion among taxpayers regarding these deadlines. To alleviate…

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New W-4 questions on church compliance

Since we don’t want the IRS to put a target on your back or your employees to be under-withheld this year, here are the most frequently asked questions about the new W-4 to help you better understand it and be in compliance. Why did the 2020 W-4 change? The 2020 Form W-4 changed to simplify…

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