QuickBooks for Houses of Worship: Understanding Pastor Payroll

November 24, 2020
QuickBooks for Houses of Worship:
Understanding Pastor Payroll

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Today’s Presenters
Barbara Starle
On-Call Controller, CPA,
Author, and QuickBooks Pro
Advisor
Gregg S. Bossen
QuickBooks ProAdvisor,
Nonprofit QuickBooks Trainer
and Owner
@Gregg S Bossen, CPA

Presenters:
Barbara L. Starley, CPA
Gregg S. Bossen, CPA
Hashtag #QBME
Twitter:
@QBMadeEasy
@GreggBossen
@BarbaraStarley
QUICKBOOKS® FOR
HOUSES OF WORSHIP: UNDERSTANDING PASTOR
PAYROLL
WELCOME TO THE SHOW!!! WE WILL START AT 2:02PM EDT (11:02AM PDT) YOU
SHOULD BE HEARING MUSIC ☺ ☺ ☺
@2020 Barbara L Starley, CPA

QuickBooks Made Easy for Houses of Worship Webinar
About Our Instructors
Gregg Bossen, CPA
• Certified Advanced QuickBooks ProAdvisor®
• Specializes in Industry Specific Training
• Author of QuickBooks® Made Easy™ for Nonprofits
• National Trainer – seminars around the country
QuickBooks Made Easy™ for Nonprofits
Atlanta, GA
www.quickbooksmadeeasy.com
Barbara L. Starley, CPA
• QuickBooks ProAdvisor®
• Best-Selling Author
– Your Amazing Itty Bitty QuickBooks books
• On-Call Controller
• Founder - Good Steward Church Academy®
• Barbara@BarbaraStarley.com

What We Do
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❑ Live Seminars/Webinars across the country
Train & Support Nonprofits using QuickBooks

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Ends 11/28/2020 at 11:59PM PST
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Upcoming Webinars
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Getting Your 2020 1099's Out of QuickBooks Desktop
January 13th (Wed @ 2pm-3:30pm EDT)
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Getting Your 2020 1099's Out of QuickBooks Online
January 14th (Thu @ 2pm-3:30pm EDT)
https://bit.ly/33ej6tM

Pastor Payroll – Agenda
• Classification of Workers in Houses of Worship
• Who can be a Pastor?
• What does “dual status” mean?
• Housing Allowances
• Reporting Pastor Compensation
• Concerns & Misconceptions about Taxes

3 Key Factors = Employee Status

Classification of Workers
Employees Non-Employees
https://www.irs.gov/pub/irs-pdf/f1099nec.pdf
https://www.irs.gov/pub/irs-pdf/fw2.pdf

Who is a
Pastor?
• Licensed, commissioned, or ordained
minister
• Common law employee of a religious body
• Employed to provide ministerial services
– Ministration of sacerdotal functions
– Conduct of religious worship
– Control, conduct, and maintenance of organizations
https://www.irs.gov/pub/irs-utl/ministers.pdf

What does
“dual status”
mean?
• Status of employee for federal income tax
purposes
• Status of self-employed for Social Security
& Medicare purposes

Which form should a
Pastor receive?

Pastor Compensation
Housing
Benefits
Salary
Excluded from federal (and
most state) income tax; but
subject to SE tax
MAY be taxable for both income
tax and SE tax
Included in income
for income tax and SE tax

Housing Allowances
A minister's housing allowance
(sometimes called a parsonage allowance or a rental allowance)
is excludable from gross income
for income tax purposes
but NOT excludable
for self-employment tax purposes.
https://www.irs.gov/faqs/interest-dividends-other-types-of-income/ministers-compensation-housing-allowance/ministers-compensation-housing-allowance

The Lesser of Three
BoardDesignated
FairRentalValue
ActualExpenses
Mortgage Principal
& Interest
RE Taxes
Home/Renter
Insurance
HOA Fees
Utilities
Repairs
Yard Maintenance
Furniture
Appliances
Down Pmt in Yr of
Purchase
Furnished
Utilities
Dollar Amount
or
Percentage of
Income

REMINDERS
• Housing Allowances must be:
– Formally designated and recorded in
advance
– May not be established or changed
retroactively

Exception to Housing Exclusion
If your housing allowance
exceeds the lesser of
your reasonable compensation,
the fair rental value of the home,
or your actual expenses directly relating to providing the home,
you must include the
amount of the excess in income.
https://www.irs.gov/taxtopics/tc417
Note: It is ultimately the Pastor’s responsibility to determine any
excess housing allowance.@2020 Barbara L Starley, CPA

Pastor’s W2
Boxes 3, 4, 5 & 6 = Blank (or $0)
for pastors
Box 1 = Total Compensation,
NOT including housing allowance
Box 14 = Housing Allowance
Box 16 = Generally the same as Box 1, unless housing allowance is
taxable for state income taxes
Name & Address of House of Worship
Name & Address of Pastor
Year

What is included in Box 1 income?
Salary &
Bonuses

Salary &
Bonuses
Cash &
Gift Cards

Salary &
Bonuses
Cash &
Gift Cards
Reimbursed
FICA/Ins

Salary &
Bonuses
Cash &
Gift Cards
Reimbursed
FICA/Pers Ins
Non-Accountable
Allowances

Salary &
Bonuses
Cash &
Gift Cards
Reimbursed
FICA/Pers Ins
Honorariums
Non-Accountable
Allowances

Salary &
Bonuses
Cash &
Gift Cards
Reimbursed
FICA/Pers Ins
Pastor Appreciation
Love Offerings
Honorariums
Non-Accountable
Allowances
Des
Fund

“Fund Buckets™”

Does Your House of Worship
collect designated/restricted funds?

Can a Pastor have taxes withheld?
States have a similar form that will allow
Pastors to withhold state taxes as well.

• Pastor Compensation:
• Base Salary
• Clergy Housing (cash)
Typical QBO Set-up for Pastor
Note:
Clergy Housing (In-Kind) = Church Provided

Claiming an
Exemption
from SE Tax
• You can request an exemption from self-employment tax for your
ministerial earnings, if you're opposed to certain public insurance for
religious or conscientious reasons.
• You can't request exemption for economic reasons.
• To request the exemption, file Form 4361 with the IRS.
• You must file it by the due date of your income tax return (including
extensions) for the second tax year in which you have net earnings from
self-employment of at least $400.
• This rule applies if any part of your net earnings from each of the two
years came from the performance of ministerial services.
• The two years don't have to be consecutive.
• The exemption is granted if IRS approves your application.
• Once granted, the exemption is irrevocable.
@2020 Barbara L Starley, CPA https://www.irs.gov/taxtopics/tc417
Form 4361

Under Penalties of Perjury
A pastor can only opt out if he can truthfully state:
“I am consciously opposed to,
or because of my religious principles
I am opposed to,
the acceptance of any public insurance
that makes payments in the event of death, disability, old age, or retirement;
or that makes payments towards the cost of, or provides services for, medical
care.”
Form 4361
@2020 Barbara L Starley, CPA https://pcarbi.org/pastors-social-security/

Form 4361
This form creates an IRREVOCABLE election between the Pastor & the IRS. Covers only church income.
Conscientiously opposed to:
• Social Security (OASDI)
• Medicare/Medicaid
• TANF/Temporary Assistance for Needy
Families
• SNAP/Food Stamps
• WIC/Women, Infants & Child Welfare

Useful Resources
Ministers Audit Techniques Guide
https://www.irs.gov/pub/irs-utl/ministers.pdf
Publication 517
https://www.irs.gov/pub/irs-pdf/p517.pdf

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Desktop Users: https://bit.ly/3615Iee
Online Users: https://bit.ly/33ej6tM

Get Social Use Hashtag #QBME
Twitter: @QBMadeEasy
@GreggBossen
Thank You!
Presenters:
Barbara Starley, CPA
Gregg S. Bossen, CPA

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QuickBooks for Houses of Worship: Understanding Pastor Payroll

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