Understanding church payroll is challenging for many religious organizations. There’s a big misconception that churches don’t pay payroll taxes, and some assume church employees don’t pay taxes on their earnings, but neither is true. There are some nuances you need to be aware of as compared to running payroll for a profit-based business, but there are also many similarities. For example, Social Security and Medicare must be withheld from non-clergy employees’ paychecks (and your church bank payroll account) and paid to the IRS.

Self-Employment Taxes

An employee minister, however, may enter into a voluntary withholding agreement with your church by completing a W-4 Form. In that case, you can withhold not only income taxes but also estimated self-employment taxes. 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, you’re not required to withhold income tax from the compensation you pay. (In combination, these two taxes are known as FICA.) As their employer, you will also pay the IRS a matching amount for Social Security and Medicare out of the church’s funds. We discovered that Gusto has all of the capabilities that churches need to make payroll and tax compliance easier.

Housing Allowances

If you’re one of these organizations, then you have some unique considerations when it comes to payroll for church employees. While there are many similarities with payroll for for-profit organizations, your church or other religious entity may have to follow different rules and regulations, which can get complicated. With nonclergy employees, church employers are responsible for withholding money for Social Security and Medicare. Ministers do however have to pay self-employment taxes and file Form 1040 (Schedule SE). Once you’re finished paying your church employees for the year, you’ll need to report their earnings and tax deductions on a W-2 form and send it to them by January 31 following the year for which you’re reporting.

Employee Retention Credit.

• Utilizing a payroll partner familiar with payroll for churches can help ensure smooth operations and prevent any fines or penalties.
• Unlike for-profit businesses, however, you’re not required to pay the Federal Unemployment Tax Act (FUTA) tax or state unemployment tax.
• All of your generous donations go towards the maintenance and upkeep of our church.
• After reading this article, you’ll have the information you need to set up accurate and compliant church payroll so you can focus your time and energy on furthering your mission.
• You are probably not alone if the day you process payroll is your most stressful time of the week.

Sometimes, churches are on the lookout for HR advising and online resources or how-to guides. It also allows you to pay employees by paychecks and direct deposits or instantly via Cash App, with no additional charge—faster than other providers on our list (except QuickBooks, which charges a premium for same-day deposit). Small churches that require fast payment options can take advantage of QuickBooks Payroll’s next- and same-day direct deposits to pay workers. It’s also perfect for those looking for church payroll services that integrate seamlessly with QuickBooks Online. This makes handling church accounting and pay processing easy for ministries.

The platform lacks a report builder church payroll for custom reports, and users may find limited support for third-party integrations. Still, most users appreciate the ease of use and responsive payroll specialists. MinistryWorks remains one of the most popular church payroll services on the market. Payroll service and software should be easy to access and simple to set up and have a user-friendly interface. A dedicated representative, as well as employer ID and tax set-up assistance, are top criteria.

• Its payroll tax features automate applicable deductions for employees, but for workers you mark as members of the clergy, OnPay will exempt them from FICA taxes.
• Even if an examiner should find an employment tax issue with a church, it has to be sent up the chain of command.
• It offers automatic payroll runs, and you can pay employees via manual checks and direct deposits.
• Robie Ann Ferrer is an HR expert writer at Fit Small Business, focusing on small business HR and payroll software content.

Prayer for the Day

Similar to Gusto and QuickBooks Payroll, you get automatic and unlimited pay runs with SurePayroll by Paychex. Plus, it calculates salaries and deductions for both clergy and non-clergy employees, including contract workers. Aside from pay processing solutions, Gusto offers the essential tools for posting job openings, managing applicants, and scheduling interviews. Online offer letter templates are available once you’ve selected a qualified candidate to hire.

Without even knowing it, you may be losing out on the best tax filing strategies. We will sort out the questions and simplify your tax return and do all the tedious work that eats up your valuable time. Gusto helps churches with payroll by enabling them to establish up tax exemptions for themselves and their preachers.

Access and update your personal account and W-4 information at any time. Google Translate™ cannot translate all types of documents, and it may not give you an exact translation all the time. If you rely on information obtained from Google Translate™, you do so at your own risk. The New York State Office of the State Comptroller’s website is provided in English. However, Accounting for Churches the “Google Translate” option may help you to read it in other languages.