How to Setup Clergy Earnings
Who qualifies for Clergy?
- The “Clergy Status” has always applied to pastors, ministers, and other employees who are ordained, licensed, commissioned, and function in a qualifying religious capacity.
What questions to ask if a client needs to add a Clergy earning.
- Would you like the EE to be taxed for federal and state?
- Would you like the ER to be taxed on SUI/ER FUTA Tax?
- Is the ER giving an allowance for housing? If so, do these earnings need to be recorded on the W2? Are they taxed?
How to set up an earning based on what the Client's preferences are.
Head to Client Management -> Payroll -> Earnings
- Clergy
- Not taxed for federal, state, FICA, FUTA ER, SUI.
- W2 Wages: Box 1
- Clergy 2
- Taxed for Federal and State
- Not Taxed for FICA, FUTA ER, SUI
- W2 Wages: Box 1
- Clergy – SUI Taxable
- Not taxed for Federal, State, or FICA.
- Taxed on ER SUI and ER FUTA
There are 2 different housing allowance types in iSolved
- Clergy Housing Allowance
The housing allowance designated by the church is not necessarily nontaxable. It is nontaxable (for income taxes) only to the extent that it is used to pay for housing expenses, and, for ministers who own or rent their home, does not exceed the fair rental value of their home (as furnished, plus utilities).
- Box 14
- Taxed FICA, State, FUTA, SUI
- Not taxed on Federal
- Clergy Housing Paid
- Not taxed at all (except for CA SUI, SDI Only)
- There is also a Memo Calc for this earning as well. (You would use this if there was a payment made outside of iSolve for recording purposes)
Clergy FAQs
How do taxes work for Clergy?
For services in the exercise of the ministry, members of the clergy receive a Form W-2 but do not have social security or Medicare taxes withheld. They must pay social security and Medicare by filing Schedule SE (Form 1040), Self-Employment Tax.
Most ministers have dual tax status under federal law. Dual tax status means a minister is an employee of the church for federal income tax purposes and self-employed for Social Security and Medicare taxes.
What is a Housing Allowance?
The Clergy Housing Allowance is a portion of a Minister's pay that has been designated to pay housing expenses. It is considered one of the best tax benefits currently available to Clergy because this portion of income can potentially be exempt from income taxes.
How is a pastor's housing allowance calculated?
To determine your housing allowance, you should calculate both your anticipated expenses and the fair market rental value of your home. Then request the lesser amount.
The EE has changed to clergy in the middle of the year, is it possible to have 2 W2’s? One for Salary and the other for Clergy?
An EE is subjected to only one W2 per FEIN.
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