Church Payroll Taxes
As we approach quarter end, I want to remind all church treasurers to keep up with employee tax withholding reports and payments to the IRS. I’ve recently had a conversation with a church treasurer who had gotten a notice from the IRS about an overdue employee tax report. It is important for treasurers, and all church leaders, to remember that when the IRS discovers a church is not complying with reporting and payment requirements, the church will hear from them, and they can, and most likely will, impose interest and penalties on amounts owed. The same is true for the state tax department. Here is some guidance from IRS Publication 1828, Tax Guide for Churches and Religious Organizations:
“Generally, churches and religious organizations are required to withhold, report and pay income and Federal Insurance Contributions Act (FICA) taxes for their employees. Employment tax includes income tax and FICA taxes withheld and paid for an employee. Substantial penalties may be imposed against an organization that fails to withhold and pay the proper employment tax.
“Wages paid by churches or religious organizations are not subject to FICA taxes if the wages are paid for services performed by a duly ordained, commissioned or licensed minister of a church in the exercise of his or her ministry, or by a member of a religious order in the exercise of duties required by such order. However, income that a minister earns in performing services in the exercise of their ministry is subject to SECA tax.
“Unlike other exempt organizations or businesses, a church is not required to withhold income tax from the compensation it pays to its duly ordained, commissioned or licensed ministers for performing services in the exercise of their ministry. An employee minister may, however, enter into a voluntary withholding agreement with the church by completing IRS Form W-4, Employee’s Withholding Allowance Certificate.”