clergy federal withholding??

  • Thread starter Heather and Reggie Fulbright
  • Start date

H

Heather and Reggie Fulbright

Hey...it's me again. This time I have questions regarding withholding for
our pastor. I know I cannot withhold FICA, but do I understand correctly
that he can request that I withhold Federal and state taxes? I also read
somewhere that the church can add to his 'salary package' and "allowance" to
cover FICA??? I don't know how receptive the church will be to that, but
what do I need to do? Just in case. I think I figured out what forms I
would need in order to set him up for quarterly payments for federal taxes
this year, but one of the forms (can't remember which one) said to look on
his tax return from last year for one of the figures. Problem is, he wasn't
our pastor last year. So the salary will be different. So, now what??

Also, what can you tell me about housing allowances? I understand that in
order for it to be nontaxable travel allowances have to be 'accountable', is
the housing allowance the same way?

Again, any info/advice is greatly appreciated.
TIA

Heather
 
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T

Tony

Hey...it's me again. This time I have questions regarding withholding for
our pastor. I know I cannot withhold FICA, but do I understand correctly
that he can request that I withhold Federal and state taxes? I also read
somewhere that the church can add to his 'salary package' and "allowance" to
cover FICA??? I don't know how receptive the church will be to that, but
what do I need to do? Just in case. I think I figured out what forms I
would need in order to set him up for quarterly payments for federal taxes
this year, but one of the forms (can't remember which one) said to look on
his tax return from last year for one of the figures. Problem is, he wasn't
our pastor last year. So the salary will be different. So, now what??

Also, what can you tell me about housing allowances? I understand that in
order for it to be nontaxable travel allowances have to be 'accountable', is
the housing allowance the same way?

Again, any info/advice is greatly appreciated.
TIA

Heather
Heather,

First, I would warn you that the Usenet is a wonderful place to get questions
answered (usually) and that most answers are correct (usually) and that people
are helpful (usually). With that said, I would not rely on the tax advice of
faceless people who are not intimately familiar with my financial situation.
Imagine your pastor dealing with an IRS auditor and saying "No, you must be
wrong about these penalties. CPAMan on the alt.accounting newsgroup told
Heather that this was the correct way to do it!"

General questions to the group are fine, but you need to find a local CPA who
can help you with these areas. Does your denomination have someone you can go
to?

There is also a resource that we use called "Church Law & Tax Report"

http://www.churchlawtoday.com/cltrinfo.php

The company that publishes it also has many other legal/tax resources for
churches.

Now, to answer some of your questions:

FICA: You CAN withhold - however, if the pastor in question has "opted out" of
Social Security, then you do not withhold. If they did not opt out (I believe
they have a set number of months after being ordained to do this), then you
should withhold. Also, this withholding is based on salay PLUS housing
allowance.

If the pastor did opt out, then most churches will pay a FICA equivalent. This
is added to the pastor's salary, and then immediately sent to a retirement plan
custodian to fund a 403B or IRA. You should also provide a short term & long
term disability plan for the pastor. This will pretty much replace the FICA/Soc
Sec plan that they will not be receiving benefits from in the future.

Taxes: You should be withholding Fed, based on salary only. They do not pay tax
on housing.

Tax forms: Unfortunately, I cannot help you here. Perhaps someone else?

Housing Allowance: First, it has to be approved by the board/committee/group
that has oversight of the church. Second, this approval must be renewed every
year. Third, this approval is not retroactive - i.e., If someone realizes at
the March meeting that they should have renewed the housing allowance in
January, the pastor loses the allowance for the first two months. Fourth, the
Pastor should be providing YOU with this number. Finally, it must be
"reasonable" Defining what is reasonable is what keeps CPAs & Attorneys busy.
You really need to get the advice of an expert if there are questions about the
reasonableness of an allowance.

Hope this was helpful.

Tony
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