Pastor Salary on 941

[TimD]

I am using PC+ Ver 11.5 and am trying to reconcile the 941 report with my manual records. Box 2-wages, tips and other compensation- correctly shows all taxable wages for all 6 employees-pastors and other staff-and includes salary and SS reimbursements. However, Box 5a -taxable Social security wages- and Box 5c-taxable Medicare wages- are overstated, by the total of the pastor's compensation, as included in box 2. I have checked all of the Item Descriptions and the pastor's salary and SS offset are marked as such; pastor's Housing allowance is marked as such, also. Blocks 5a and 5c should only show the salary amount for non-pastor employees. When I change the pastor's salary and SS offset to non-taxable, box 2 on 941 does not then include her wages and SS, but boxes 5a to 12 are correct. Part 2 of the 941 remains accurate either way. Appreciate your help. Thank you.

[NeilZ]

I am using PC+ Ver 11.5 and am trying to reconcile the 941 report with my manual records. Box 2-wages, tips and other compensation- correctly shows all taxable wages for all 6 employees-pastors and other staff-and includes salary and SS reimbursements. However, Box 5a -taxable Social security wages- and Box 5c-taxable Medicare wages- are overstated, by the total of the pastor's compensation, as included in box 2. I have checked all of the Item Descriptions and the pastor's salary and SS offset are marked as such; pastor's Housing allowance is marked as such, also. Blocks 5a and 5c should only show the salary amount for non-pastor employees. When I change the pastor's salary and SS offset to non-taxable, box 2 on 941 does not then include her wages and SS, but boxes 5a to 12 are correct. Part 2 of the 941 remains accurate either way. Appreciate your help. Thank you.

How do you have the SS offset and salary setup. The Pastor should not show anything in 5A or 5C as the pastor is considered a self-employed person and thus should be paying SECA. All you should be withholding from the pastor (if they wish to have any withholding) is Income Tax Withholding. What many pastors do is have extra FITW withheld to cover the SECA taxes.

You may have the salary and SS withholding setup as 'taxable'. What you need to do is use the "OTHER OPTIONS" on the pastor's salary Item Description, and then on the tax list that appears only have FEDERAL WITHHOLDING checked, along with any state or local taxes that may apply. This is done under Accounting -> Payroll -> Setup -> Maintain Item Descriptions.

Does this help?

[TimD]

Thank you for your reply. It is a partial help. First, the pastor is not deducting any additional FITW. Second, we changed the salary and SS setup to "more options" and unchecked all taxes. The result of these changes affects the 941 quarterly report in this way: line 1 now does not include the pastor; line 2 does not include the pastor's compensation; lines 5 through 12 are now correct, showing only the taxable wages of all other employees. Are we correct in assuming that the pastor's compensation should appear in box 2 and the pastor should be included in the employee census on line 1 and if so, how do we make that happen? Thank you again for your help

[NeilZ]

Thank you for your reply. It is a partial help. First, the pastor is not deducting any additional FITW. Second, we changed the salary and SS setup to "more options" and unchecked all taxes. The result of these changes affects the 941 quarterly report in this way: line 1 now does not include the pastor; line 2 does not include the pastor's compensation; lines 5 through 12 are now correct, showing only the taxable wages of all other employees. Are we correct in assuming that the pastor's compensation should appear in box 2 and the pastor should be included in the employee census on line 1 and if so, how do we make that happen? Thank you again for your help

On the pastor's income items (salary & SS offset) you MUST have Federal Withholding checked, or else he will not have taxes withheld and, as you can see, his income and withholding will not appear on the 941.

[TimD]

Thank you. The pastor has no taxes withheld from her compensation. Her compensation includes SS offset but no employee FICA withholding. If we check Federal Withholding in the "more options", will her salary appear in Form 941, box 2 only? Her compensation should not appear in any of the line 5 boxes on the 941. We appreciate your patience in helping us to set up our item descriptions correctly.

[NeilZ]

Thank you. The pastor has no taxes withheld from her compensation. Her compensation includes SS offset but no employee FICA withholding. If we check Federal Withholding in the "more options", will her salary appear in Form 941, box 2 only? Her compensation should not appear in any of the line 5 boxes on the 941. We appreciate your patience in helping us to set up our item descriptions correctly.

You will have to check the Federal Withholding for the Item Description, but I'm fairly sure you will then have to include a Federal Withholding pay item for the pastor. List 99 for the number of exemptions.

That said, I am going to quote from IRS Publication 1828, Tax Guide for Churches & Religious Organizations:

Generally, churches and religious organizations are required to withhold, report and pay income and Federal Insurance Contributions Act (FICA) taxes for their employees. Employment tax includes income tax and FICA taxes withheld and
paid for an employee. Substantial penalties may be imposed against an organization that fails to withhold and pay the proper employment tax. Whether a church or religious organization must withhold and pay employment tax depends upon whether the church’s workers are employees. Determination of worker status is important. Several facts determine whether a worker is an employee. For an in-depth explanation and examples of the common law employer-employee relationship, see IRS
Publication 15-A, Employer’s Supplemental Tax Guide. If a church or a worker wants the IRS to determine whether the worker is an employee, the church or worker should file IRS Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS.

I would get an opinion from your church auditor, or an Accountant, but you may be in violation of IRS requirements unless the pastor is not considered an employee.