Clergy Withholding

[Lion EA]

I know we have some clergy tax experts on here.

Paychex handles our church's payroll, and it's called in by the church administrator. As a volunteer at this Episcopal church, I make the 403(b) plan contributions for the two lay employees. The administrator has been sending me half the Paychex spreadsheet that has that week's payroll, so I never saw withholding details other than the employEE 403(b) -- the only w/h I needed to know to calculate employER contributions and matches. Last week, she emailed me the full sheet and I saw all the w/h details, including our priest's withholding. Our church has been (or did last week) withholding OASDI, Medicare, and federal and state income tax from our priest's wages. Is that correct?

Any cites for me?

[Lynn EA USTCP in Louisiana]

I am not an expert in clergy, having only 2 clergy as clients.  See if this IRS topic is helpful. 
https://www.irs.gov/taxtopics/tc417

 

 

[Margaret CPA in OH]

That cite is a good reference.  Importantly, you need to confirm whether Form 4361 was filed by the priest.  My guess is that is was long ago.  So the OASDI and MC withholdings were wrong.  I'm not sure whether the priest wanted state withheld, too.  As a church treasurer for 7 + years and still involved, every minister here has wanted federal and state tax withheld and the local tax was required.  What to do now?  I seriously doubt that you can get it refunded but suggest that your church try to make the priest whole and, of course, check to see what has happened the rest of the year.  Check the Paychex to see if they have any solutions. Is it possible to 'reassign' these erroneous withholdings to a lay employee before W-2's are prepared and the last pays are made?

It's hard to imagine that Paychex was not apprised of the clergy status here.  A few years ago we began using Paycor and they have been great with all the quirks involved.

[Lion EA]

Thanks. I alerted the treasurer and another assistant who used to be treasurer. We have one more payroll this month and the 4Q reports to try to make this right. I hope it was just one odd pay period because it had a bonus in it and not the whole year! But, it's not my problem -- I keep telling myself. But it is my church and my priest and I want us to do it right. Thank you both.

[DANRVAN]

12 hours ago, Lion EA said:

withholding OASDI, Medicare, and federal and state income tax from our priest's wages. Is that correct?

Withholding ss and medicare for ordained clergy is not correct in any situation, regardless of whether form 4361 has been filed.

Ordained clergy are "duel status"; they are considered employees for income tax purposes but are self-employed for social security.

Their earnings are reported on 941 line 2 as wages, but are not reported as as social security or medicare wages.

They instead report there wages on form SE of their tax return unless they have filed form 4361.

(There are situations where clergy are considered contractors instead of employees, but that does not appear to be the case here)

9 hours ago, Lion EA said:

But it is my church and my priest and I want us to do it right.

If this has been an ongoing situation, then the remedy depends on how the priest has been reporting on his tax return.

-if he has not been reporting his wages on form SE and the church as been withholding ss and mc, then leave it be 2020 and do it correctly in the future.

-if he has been reporting on SE or has filed 4361 then the church needs to amend all incorrect 941's previously filed; and reimburse him for ss and mc withheld.

[Lion EA]

Thank you, all. I'm a volunteer who pays the bills, but not payroll. I only saw the priest's w/h due to it being on the same sheet as the lay employees' 403(b) contributions which I needed to pay the EE and ER parts to Fidelity. But the clergy classes I've taken made the priest's w/h jump out at me, so I dumped it all in the treasurer's lap with links to a couple of pubs and what I remember on the topic. I don't know if it was a one-time error due to bonuses being on that payroll making the Paychex computer hiccup or all year or even for all of her tenure. I've had no reason to see her past W-2s nor our payroll reports nor her tax returns. The diocese urges us to use Paychex, because they sold them on their clergy expertise, so I hope Paychex will fix this to the satisfaction of our church and of our priest and her tax preparer.

[DANRVAN]

51 minutes ago, Lion EA said:

the priest's w/h jump out at me,

Good catch!

 

[Lion EA]

I'm especially proud of being able to toss it to the new-ish treasurer. And to an assistant treasurer (who was the prior treasurer for a long time) whose husband was our senior warden one winter when Paychex prepared an incorrect W-2 for a former priest, so she and her husband (not currently on the vestry) sorted out something similar in the past and remember how time-consuming it was. That discovery was made by the priest's tax preparer in February or later, and he was a bulldog until it was redone correctly. I think we paid Paychex fees to get that one right so late. So, I'm happy that I spotted this potential problem via a spreadsheet I don't normally receive while it's still 2020. And that it's not my responsibility to fix it !!

Thank you all for jumping (pun intended) in. Merry Christmas and all the other winter holidays!

[Medlin Software, Dennis]

The clergy person might be directed to the denominational training for clergy finances.  This should have been something no clergy person should miss.  There could be other things being missed in their personal finances.  (Not that any of the personal finances are the employers issue...)

[Lion EA]

Good point, Medlin. When we had an interim priest and I was treasurer, I attended the seminars run by our diocese presented by William F. Geisler (from CA, I think): the seminar for the treasurers AND the seminar for the clergy, in case I could learn plus pick-up the handouts for the priest as we conducted a search. That was years ago, though. Our current priests' husband is in the financial field, so we talk finances together; I send him links re legislative changes, IRS clarifications, etc. They do have their own CPA who specializes in clergy taxes, so we are not going to do this wrong! When our diocese again runs financial seminars, I will strongly suggest our priest and her husband attend.