403(b) Contributions Subject to FICA and/or SE?

[mrm1]

We have been making 403(b) contributions to our pastors qualified plan for several years. We now want to offer this to our non-ministerial paid staff. Found this knowledge base document on how to set up the accounts (https://www.powerchurch.com/support/kb. ... =17&type=1)... and saw the line "From a tax standpoint, 403Bs and 401Ks are not exempt from Medicare and Social Security. However, they are exempt from Federal Withholding." This is clear as to employees of the church ... but does this also apply to ministers who pay SE tax and not FICA? Should the amount paid by the pastor or by the church for the pastor be subject to SE tax?

So here are my questions in setting up payroll deductions from within the payroll module:
1. Do ministers pay SE tax on Contributions to 403(b) plans from salary deduction and check written by the church directly to the 403(b) plan
2. Do ministers pay SE tax on employer portion contributions made for them by the church
3. Does the church / employer portion of the contribution suppose to show in Box 12 of the W2 ... or only the portion that the minister elected to deduct from salary

For Church non-ministerial Employees
1. According to the knowledge base link above .... Employees would pay FICA on contributions they elect to contribute to a 403(b) plan
2. Do they pay FICA on the portion of Matching funds the church would elect to match for them Also?
3. Do we show both the employee and employer match contributions to the 403(b) in box 12 on the W2 or just the employee contribution

In both cases, for ministerial and non ministerial staff we are contributing to a denomiation / church sponsored plan and the check / checks are written directly to the 403 (b) plan. (in our case either Church Extension Plan or AG Financial MBA)

[NeilZ]

First off, these are answers based on my own personal experience, I am not a tax professional. My advice is to consult with a tax professional who is familiar with IRS rules for Churches and Ministers.

So here are my questions in setting up payroll deductions from within the payroll module:
1. Do ministers pay SE tax on Contributions to 403(b) plans from salary deduction and check written by the church directly to the 403(b) plan

Yes they do ... because it SECA is based on total salary which includes any Manse/Housing Allowance.

2. Do ministers pay SE tax on employer portion contributions made for them by the church

My wife is a pastor, and we have never paid any SE tax on the employer pension payments.

3. Does the church / employer portion of the contribution suppose to show in Box 12 of the W2 ... or only the portion that the minister elected to deduct from salary

Box 12 reflects the reason why the amount is not listed in the Federal Income Tax Wages. It is strictly for the minister's contribution, and the system will set that up properly.

For Church non-ministerial Employees
1. According to the knowledge base link above .... Employees would pay FICA on contributions they elect to contribute to a 403(b) plan

Actually, that's not completely accurate. It depends on the type of deduction they choose. Here's the IRS publication on 403(b)s:
https://www.irs.gov/publications/p571/ch01.html

2. Do they pay FICA on the portion of Matching funds the church would elect to match for them Also?

This is a question for a tax advisor. From the way you have it phrased, this sounds like a 'taxable benefit' and you can set it up that way in Powerchurch. However, I would check with a professional.

3. Do we show both the employee and employer match contributions to the 403(b) in box 12 on the W2 or just the employee contribution

If you have the system setup correctly, the system will display the proper amounts. Again, setting it up depends on the answers from a tax professional.

In both cases, for ministerial and non ministerial staff we are contributing to a denomiation / church sponsored plan and the check / checks are written directly to the 403 (b) plan. (in our case either Church Extension Plan or AG Financial MBA)

In my experience, such denominational plans offer some publications and/or live assistance on these sorts of questions. I would check with the plan's office or website to see if such information is listed.

Hope this helps.