"EDITED ONLINER DIALOGS"
TOPIC: QBooks and Clergy W-2 FILE: 2025-07
UPTD: March 09, 2012 TOPICAL OVERVIEW: Dialog with regard to a Church who uses QBooks (QB) for their clergy payroll needs. Issues include the Church providing their clergy with a Parsonage and Housing Allowance and reporting of such matters re the annual W-2 (or Form 1099) , plus an annual Clergy Letter.
Our Pastor is a qualified clergy. How do I use the QB payroll to produce their year end W-2's, etc?
Such matters are handled by tax people in a variety of ways, it is an inexact science, but my personal view follows the fact pattern and grid below.
Base Salary or Stipend
Due to Church providing the Pastor
with a House or Parsonage valued at:
Other Housing Allowance
Retirement (403b) paid entirely by the Church
(a) Preference is to place a footnote within the W-2 blocks 13/14 etc
that says something like "See info within annual Clergy Letter"
Thank you. But what about making the $12,000 and the 403b information known; especially the $12,000 as this might be subject to self-employment tax? Maybe that is what you mean above by the Clergy Letter.
As mentioned above, this seems to be done in different ways by tax preparation professionals as they interpret this unique area of the law. As a retired CPA, my view is that the Clergy W-2 boxes should only contain essential taxable income information so as to not clutter. Plus various payroll outsourcing services can not adequately insert all of the relevant Clergy data and the Ministry ends up amending and re-submitting each year.
Please note the sample Clergy Letter below where relevant information is communicated to those who should know.
Suggested content of annual Clergy Letter
Dear Rev. xxxxx
Enclosed is your W-2 for the year xxxx. Please be aware of such matters as the following:
1> This is the "See attached Clergy Tax Letter" referenced as a footnote to your W-2 .
2> Your Clergy taxable income was $xx,xxx.xx. See W-2 block 1.
3> During the year, at your request, we withheld $x,xxx.xx of Federal Income Tax from your pay checks and remitted it to the IRS along with such employee withheld taxes. The amount is shown in block 2 of the enclosed W-2.
4> We also withheld $xxx.xx of XXXXXXX State Income Tax from your pay checks and remitted it to the state taxing authority. See above comments about form W-2.
5> We did NOT withhold (or match) and remit any employee Social Security and Medicare taxes from your pay checks. This is not appropriate since you are a self employed clergy who might file and pay Federal Self Employment taxes.
6> As you know, at the first of the calendar year, you were authorized an annual Clergy Housing allowance of $xx,xxx. You received this in installments during this past year.
7> You did NOT receive any other allowances from the Church. During the year you were reimbursed for usiness/church use of your personal auto at the prevailing IRS mileage rate.
8> As to retirement matters, please be aware of the following:
Total payments during the year were: xxx.xx
Withheld from your pay checks xxx.xx
Balance paid by the Church xxx.xx
Type of plan is xxxx
9> We are told that some tax preparers advise you to attach a copy of this "Clergy Tax Letter" to your filed tax returns
If you or your tax preparer has any questions about any of these matters, please contact the Business office. Thank you.
Very very helpful - thank you. Any other matters that would assist us in this process.
Yes, it is vital that you use the appropriate QBooks "Payroll Items" in order for them to produce the applicable annual W-2. Please click here and learn more about such matters and the availability of a Sample Clergy QBPro2003 file; if that does not give you enough help along these lines please contact us at Jim@bcidot.org Thank you.
If for some reason the QBooks produced W-2 for the current year is not correct, then you will need to prepare a corrected W-2 and send a copy via form W-3c. Then, of course, you need to use the appropriate QBooks payroll items for the new calendar year so it will be done properly in the future.
As most of you know, we here at www.bcidot.org dialog by email with Onliners regarding Ministry Finance (MinFin) issues. Above is an "Edited Onliner Dialog", or an edited version of an actual dialog with one of you, but we have honored your privacy and have not used your name or that of your Ministry. Our purpose is to take this information and make it available to any interested Ministry Finance Team (MFTeam) so you can learn from one another. Let us know if you would like to dialog on a Peer to Peer basis with the other Onliner involved and we will try to put the two of you together. Thanx - Jim Bramer - Proverbs 9:10
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