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The treasurer's page.

Most church treasurers are volunteers, and most payroll software has never heard of a minister. Four things go wrong as a result, every year, in good churches. Here is each one in plain words, with the free document that fixes it. Get these right once and they are right for every minister this church will ever employ.

1. The W-2: boxes 3 through 6 should be empty

A church cannot withhold FICA on a minister's pay for ministerial services. Ministers are outside Social Security's employee system for that work (that is exactly why self-employment tax exists for them). Payroll software assumes FICA is mandatory, so unless someone overrides it, boxes 3, 4, 5 and 6 get filled in and every figure downstream on the minister's return is wrong.

Box 1: salary, excluding the designated housing allowance.
Box 2: only federal income tax the minister asked you to withhold (see section 3). Nothing is mandatory.
Boxes 3, 4, 5, 6: empty, for ministerial wages.
Box 14: optional, but a good place to show the housing allowance paid, for the preparer.

If a past W-2 has FICA in it, the fix has three parts: issue a W-2c, refund the withheld FICA to the minister, and file Form 941-X to recover the church's share. Treasurers routinely miss the third.

The W-2, box by box, reviewed by a clergy-tax CPA →

2. The housing allowance: a board action with a date

The allowance only works if the board designated it in writing, in advance. The IRS looks for a resolution in the minutes naming the amount, the year and the minister. A designation adopted after January 1 counts only from the day it was adopted; the months before it are gone.

Two things protect the minister: adopting the resolution at the last meeting before the year begins, and including a continuing clause so a missed December meeting does not cost him a year.

Print the resolution for your board

Free, no account, one page, with the number the minister gives you filled in. In payroll, identify the amount as housing allowance so it stays out of Box 1.

3. Withholding: no FICA, but extra federal income tax on request

Because nobody withholds the minister's Social Security and Medicare, he owes it himself in April as self-employment tax, on salary and housing allowance. Many ministers are caught by it every year.

The clean answer is a voluntary withholding agreement: the minister gives you a Form W-4 with an extra amount in Step 4(c), and you withhold that much more federal income tax each paycheck. It is reported in Box 2 like any other income tax withheld. It is not FICA, and it does not go in boxes 3 through 6.

ClergyTrak works out the per-paycheck amount from the minister's figures and prints a one-page request sheet addressed to you, with the W-4 line to fill in. The minister prints it from his free account.

How the number is worked out →

Transcript

Once your church knows they can withhold extra federal income tax to cover SECA, and that it goes on your W-4 and in Box 2 of your W-2, they can do the same for every pastor who comes after you. All the next pastor needs is an accurate SECA number. ClergyTrak works out that number for you, and prints the one-page request your treasurer can hand straight to payroll.

4. The accountable reimbursement plan

Ministry expenses the church pays back under a written accountable plan are not wages to the minister and are not reported on the W-2. Three conditions, all three required: a business connection, adequate accounting (receipts, within a reasonable window, typically 60 days), and return of any excess. Paid from the operating budget; a salary reduction does not qualify.

Professional resources, books and software are an ordinary category under such plans, and a minister may ask whether his ClergyTrak subscription qualifies, since it substantiates the designation the board sets and produces the documents kept with the board's records. ClergyTrak prints the voucher for that request, free, with the citations a treasurer can check. Whether it qualifies is the church's decision under its own plan.

The authorities, for the file: IRC §162 (ordinary and necessary business expenses) and Treas. Reg. §1.62-2 (the accountable plan rules).

Where to send the minister

Most pastors have been handling all of this the way it was handed to them. Two free places to start, no account needed:

The two-minute checkup: six numbers, three findings, including whether his W-2 needs a second look.
The guides: the housing allowance explained by a pastor of forty years, written for pastors, not accountants.

From there, ClergyTrak's free account gives him his three numbers and the resolution to bring you. The paid plan adds the board report and the year-end packet his CPA asks for.

Disclaimer: This page is general educational information for churches in the United States. It is not legal, tax, financial or accounting advice, and it does not create any professional relationship. Confirm each item with the church's own tax professional. See IRS Publication 517.