(Published in the Fall/Winter of 2010 Newsletter)
Churches are often not aware of the tax implications of their organization. Once a church has employees, for example, many levels of taxes come into play. For example, a church usually cannot treat an employee as an independent contractor but the church is usually exempt from paying Unemployment Compensation taxes.
Churches do have to withhold and deposit regular employment taxes based on what is withheld from the employee and what is owed by the church as an employer. This can be paid and/or deposited either quarterly or monthly, depending on how much the yearly tax amount is. But Pastors are often treated as self employed under the Internal Revenue Code which means that the Pastor, rather than the church, is responsible to pay self-employment taxes (Social Security taxes) and to deposit the estimated taxes quarterly.
A church can shelter a reasonable amount of a Pastor’s salary, as a nontaxable housing allowance, and a church can reimburse a Pastor for actual expenses incurred such as mileage. However, such reimbursements must be part of an expense reimbursement plan and the expenses must be documented.
Recently, one local church had a volunteer treasurer who forgot to deposit the employment taxes. The lawyers at Trinity Law helped the church get the proper taxes determined and deposited. We succeeded in getting some of the penalties waived for our client, the church. Needless to say, this church was very pleased with our work.
NOTE: The contents of this Newsletter are not intended to be, nor should they be taken as, specific legal advice as each situation is different. Please contact a lawyer with any questions you may have.
The attorneys at Trinity Law can help. Contact us now by calling, toll free, 1-866-464-5297.