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Step 1. Set up Records for Withholding Taxes

According to the IRS, you must keep records of employment taxes for at least four years. Keeping good records can also help you monitor the progress of your church, financial statements, identify sources of receipts, keep track of expenses, and payroll tax returns, etc.

Below are three types of withholding taxes you need for your business:

  • Federal Income Tax Withholding
    Every non-clergy employee must provide the church with a signed withholding exemption certificate (Form W-4) on or before the date of employment. Clergy are subject to estimated payments
  • Federal Wage and Tax Statement
    Every year, the church must report to the federal government wages paid and taxes withheld for each employee. The church must complete a W-2 form for each employee who they pay a salary, wage or other compensation.
  • State Taxes
    Depending on the state where your employees are located, you may be required to withhold state income taxes.

Step 2. Employee Eligibility Verification

Federal law requires employers to verify an employee’s eligibility to work in the United States. Within three days of hire, employers must complete Form I-9, employment eligibility verification, which requires employers to examine documents to confirm the employee’s citizenship or eligibility to work in the U.S. Employers can only request documentation specified on the I-9 form.

The church does not need to submit the I-9 form with the federal government but are required to keep them on file for three years after the date of hire or one year after the date of the employee’s termination, whichever is later.

Churches can use information taken from the Form I-9 to electronically verify the employment eligibility of newly hired employees by registering with E-Verify.

Step 3. Register with Your State’s New Hire Reporting Program

All churches are required to report newly hired and re-hired employees to a state directory within 20 days of their hire or rehire date.

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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