Balancivo · Churches and nonprofits

Pay a minister with a housing allowance

Add a pastor or other minister to payroll with a housing allowance, and see how their taxes are handled.

Who can do this: Owners.

Pay a minister with a housing allowance · 55 sec · shown with a sample organization.

Read the transcript

Ministers have their own tax rules, and Balancivo follows them for you. On the People tab, click Add a person. Enter their name and job title, and set Kind to Minister / clergy. Enter their yearly salary and how often you pay them. Enter the housing allowance your board approved for each payday. It's added to each paycheck. Check this box only if your minister asked you to withhold income tax. Most don't, so leave it unchecked. Pick the state where they work, and click Add person. Run payroll as usual. Click Pay runs, then New pay run, then Calculate. The Pay group shows gross wages and the housing allowance. No Social Security or Medicare is taken out or matched. Have a CPA, enrolled agent, or payroll professional review any pay for ministers before you post it.

The IRS treats ministers differently from other employees. Part of their pay can be a housing allowance, which isn't subject to federal income tax, and the church doesn't withhold or match Social Security and Medicare. Set a minister up as Minister / clergy and Balancivo handles these rules in each pay run.

Before you start

Set up payroll: agree to the payroll terms and check your payroll settings.
The housing allowance must be set aside by the church board, in writing and in advance.

Steps

Go to Payroll and click People. Click Add a person.
Enter the Name and Job title (optional), like Senior Pastor.
Set Kind to Minister / clergy.
Fill in Pay. Choose Paid by, enter the Yearly salary or Hourly rate, and pick How often.
Enter the Housing allowance each payday. This is added to each paycheck.
Decide on income tax withholding. Check They asked us to withhold income tax (voluntary; they filed a Form W-4 with the church) only if they asked. Then fill in the Federal Form W-4 section that appears.
Pick the State where they work, then click Add person.
Run payroll as usual. On their pay run, the Pay group shows Gross wages and Housing allowance. See Run payroll.

Good to know

Without the withholding box checked, no income tax is withheld. Ministers usually pay quarterly estimates instead.
No Social Security or Medicare is withheld or matched for a minister. They pay self-employment tax themselves. Federal and state unemployment tax isn't figured on their pay either.
The minister's pay stub explains that the housing allowance is not subject to federal income tax and that they pay their own Social Security and Medicare.
On the Summary tab, the W-2 helper shows the housing allowance separately (usually in Box 14), not in Box 1.
On the Form 941 worksheet, ministers' salaries (not the housing allowance) are included on line 2 by default. Change Include ministers' salaries on line 2 under Employer details only if your tax professional advises it.
Have a CPA, enrolled agent or payroll professional review any pay for ministers.

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