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…
Should I have a Social Security Allowance?
Should I have a Social Security Allowance? While ministers are employees for federal income tax reporting purposes, they are self-employed for Social Security purposes with respect to services they perform in the exercise of their ministry. This means that they must pay both the employee and the employer share of social security tax under the…
Repay student loans up to $5,250 tax-free
The Coronavirus Aid Relief and Economic Security Act (the “CARES Act”) provides a way for churches to provide both tuition, books, supplies, and student loan payments tax-free through January 1, 2026. Generally, a Section 127 Education Assistance Plan only allows the church to pay or reimburse tuition and other qualified educational expenses. Section 2206 of the CARES Act modifies…
Worker’s Compensation Insurance and Unemployment Benefits
Worker’s Compensation Insurance and Unemployment Benefits During this season when we pause to celebrate Labor Day, two important labor issues for churches to consider are worker’s compensation insurance coverage and unemployment taxes and benefits. Both of these issues can be confusing for churches. Worker’s Compensation Insurance: Worker’s Compensation insurance provides benefits for employees who are…
Safeguarding Form 4361 – Opting out of Social Security
Safeguarding Form 4361 – Opting out of Social Security A minister who wishes to be exempt from social security/Medicare tax must file a Form 4361 with the IRS for approval. Before your application can be approved, the IRS must verify that you are aware of the grounds for exemption and that you want the exemption…
Is the Housing Allowance a deduction or exclusion?
Is the Housing Allowance a deduction or exclusion? The housing allowance is an exclusion from income, not a deduction. This means that the amount claimed is never reported to the Internal Revenue Service (IRS) as part of your annual income. A housing allowance can be taken only if the amount to be excluded is officially…
What clergy need to know about estimated payments
What clergy need to know about making 2021 estimated tax payments The United States income tax system is a pay-as-you-go tax system, which means that you must pay income tax as you earn or receive your income during the year. You can do this either through withholding or by making estimated tax payments. If you didn’t…
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…
Mid-Year – Housing Allowance Review
Mid-Year Review of Housing Allowance Designations Perhaps the most beneficial tax benefit available to a minister is the clergy housing allowance, which allows a minister to exclude permissible housing expenses from taxable income. Now that that the current year is more than half over, it is a good time for churches and their ministers to…
Is a Minister’s Outside Income Taxable?
Is a Minister’s Outside Income Taxable? When a minister’s income is reported on a year-end W2 or 1099, it is straightforward that the income is taxable and must be reported as such. However, it may be less clear to a minister if other forms of income should be reported as taxable. A minister may receive…