Discussion:Bonus for a Pastor
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| 19 May 2007 | |
| If a pastor receives a lump-sum (I'll call it a bonus) to alleviate the burden of his self-employment tax, is this taxable as salary & wages and therefore should be shown on his W-2? Or does this "bonus" go on a 1099-MISC? | |
| 19 May 2007 | |
| No 1099 for the minister. This is wages and should be shown on his W-2. It is much like a church term of call for a minister to pay his 1/2 of SE taxes and is income to the minister. | |
| 19 May 2007 | |
| Sandy, but he doesn't have w-2. He gives me a letter, that states that the cherch paid him $9000. | |
| 19 May 2007 | |
| Well....the church is not reporting this correctly Louise. A minister is treated as an employee even though he files a Schedule C. The church should be filing forms 941 and W-2's. They are exempt from 940 and State unemployment, but they certainly should be giving the minister a W-2.
Is your client an ordained minister? | |
| 19 May 2007 | |
| Sandy, I have no idea what ordained means. I'm not familiar with their terminology.
I know that he is an only minister in his small church. I also know that he report his commissions (or whatever it's called) to a parent church. They give him a letter, and as per his verbal statement they do it for ages. I know that his church was registered in IRS about 35 years ago, but due to the fact that it had never filed anything, IRS canceled the FEIN. I also have another minister, and he doesn’t even have a letter. He simply tells me that he receives from the church $6K per year. So, what do WE have to do when they do something they shouldn’t? If they didn’t file 941, didn’t deduct his tax (any tax), and gave him a letter that they paid him. I think that regardless what position he held, and who paid him, if he made some money, that were not processed properly, it’s 1099-misc. Am I right? | |
| 19 May 2007 | |
| You obviously have no choice but to file it as self employment earnings unless you went with an SS8 and I am certain you don't want to do that.
The pastor is an employee and the pastor as the leader of the congregation needs to let the finance department (or whoever writes him checks) that he is an employee and that these forms need to be filed in the future. So you have one church minister whose church doesn't have an EIN? So the church is not filing any paperwork? The church does not need to file a 990, but certainly they have to report contributions, etc. Perhaps the church is giving the minister a gift and he is donating his services? | |
| 19 May 2007 | |
| Thanks, Kevin. So what do I do then, if I don't have w-2
Dsglouise, report the wages with a substitute W-2 using Form 4852. | |
| 20 May 2007 | |
| Don't you file the 4852 if you had federal withholding out of your check as a substitute for the w-2? | |
TaxAssistCPA (talk|edits) said: | 20 May 2007 |
| I have worked with churches and ministers for years. They have a dual status with the IRS: They are employees for salary purposes but are considered self-employed for withholding purposes. You never withhold SS or Medicare - the minister pays SE tax on his salary PLUS housing and pays income tax on his salary only - which would be in box 1 of his W-2. There is no schedule C involved re: the church salary, although he may have a schedule C for other payments he receives for speaking engagements, etc. He can elect voluntary FED and state withholding if he wants to avoid making estimates - BUT never withhold SS or Medicare. You can withhold additional FED to cover SE tax. Back to your original question: the additional money paid to cover SE tax is considered W-2 box 1 salary. | |
| 20 May 2007 | |
| My thoughts exactly Tax....but my question was the 4852 would only be filed if FWT was withheld is not that correct? In this instance, it should have been W-2 wages, subject to Federal and SE taxes but since she only has a "letter" to indicate what monies the minister received and the church has not ever filed prx returns, then what is her option now?
I still wonder if the money was intended as a "gift" to the minister and he is NOT being paid for services at all. I wonder if it is an ordained minister or just a non ordained or sanctioned "person" who performs services for a group of people and they simply give him an honorarium... | |
Marezidotes (talk|edits) said: | 21 May 2007 |
| A church cannot give "gifts" to its pastor (or anyone else for that matter.) As Tax said, it should be treated as W2 income. Don't forget his employee business expenses (and Schedule C expenses, if he has other income from ministerial services - funerals, weddings, etc.) are subject to the Deason Allocation rules if he receives income tax-free housing allowance. | |
| 21 May 2007 | |
| If the church gives an honorarium to a "visiting minister" then yes, they can do so without a W-2. Of course this is income to the minister. Much like the ministerial services you are speaking of if the minister is NOT a regular employee of the church. I am trying to understand Louise's statement that the church gives a "letter" to the minister...perhaps they are a visiting minister or in some way not connected to the church at large???? | |
| 21 May 2007 | |
| Sandy, I thank you so much for your involvement.
I’ll try to be more specific. Due to the fact that I don’t know the difference between minister and priest (I was brought in communistic country that had no religious), I had no idea that there is any difference in their treatment from tax point of view. I just found out from my coworker the difference between them. And what I can add to my previous statement is, that the guy, who receives a letter from the church, lives in the church house, works as a priest (I suppose), performing prayers for people who attend this church. He also performs services for funeral… He doesn’t travel anywhere. The church house is his primary residence, and he doesn’t pay a rent, and doesn’t own it, the church does. Another guy doesn’t give me any letters. He just tells me that the church gave him $6K or $8K… But this guy spends the most time of the year in Canada, and comes to US some times. I don’t know if the information above makes any difference. I hope it does, because I’m clueless of what to do. | |
| 21 May 2007 | |
| You are most welcome Louise :)
The priest is getting a housing (manse or parsonage is typically what it is called) and this is reported to him as a housing allowance; it is not taxable to him, but his income from his ministerial functions ARE w-2 wages...no 1099. He is an employee of the church and any income from the church is reported on his w-2. If he receives additional income from funerals, weddings, etc. then these two would be w-2 wages unless the individuals are paying for them apart from the church, but they are still income to him. For the second minister, he is receiving (or at least it sounds like it) an honorarium for speaking. These are treated the same as the weddings and funerals. If the church is not EMPLOYING him and he is only a transient minister, then this is simply self employment honorariums. For the first, you need to have these reported as w-2 wages. Can you have or can you file late w-2's and 941's for the church? For the second, sounds like he is only receiving honorariums and is not being supported by one individual church.... Hope this helps you!! | |
| 21 May 2007 | |
| Although not taxable for income tax, the housing allowance is subject to SE Tax | |
| 21 May 2007 | |
| And the housing allowance can be taxable for income tax if it exceeds limits, ie: Fair market rental value, ect. | |
| 21 May 2007 | |
| I wish that this church would be my client, that I could put my hands on their papers, and got experience, and a client. Actually they offered me the opportunity to be their bookkeeper (for they don’t use a tax accountant at all), but in return I had to turn myself into their religion. Well, their serious proposal sounded very funny to me, for these changes are not for my age, not in my schedule, and absolutely not correlate do my attitude. So I simply thanked them and said “no”.
Therefore, I can’t file 941 or W-2. I can amend his return for housing allowance, but I’m not sure if he wants me to do that, because he is very happy to pay SS tax, knowing that he’ll get something at retirement. Thanks | |
Marezidotes (talk|edits) said: | 21 May 2007 |
| The minister in this case does not appear to be a "visiting minister" for this church which is why I said it should be treated as W2 income. Yes, I know, Sandy, that a church can pay an honorarium to a visiting minister that would not be W2 income, but it still would not be considered a "gift" for IRS purposes and would definitely be considered income to the recipient. | |
| 21 May 2007 | |
| The second minister mare; not the first minister which she spoke about. The first minister is an employee, no doubt about it...the second is a visiting minister from Canada and the honorarium should be additional non w2 wages for this minister.... | |
