From time to time people call asking if the pastor is a church employee. In some denominations, the answer could be "yes" or "no." In the United Methodist Church in the South Georgia Conference, the answer is an unequivocal "yes."
ACCORDING TO THE IRS, YOUR pastor definitely IS a church employee. They are to receive a W-2 at the end of the year for all wages paid. HOWEVER, there is a Social Security statute that says even though the pastor is a church employee, for the purposes of social security taxation alone the pastor is treated as self-employed. This means the church is prohibited from withholding or paying FICA taxes on their clergy. The church MAY withhold regular income taxes, but is not required to do so.
If your pastor is a lay supply appointment, they do not meet the standard of "clergy" for the United Methoist Church, and so the church must treat them as they do any lay employee (including withholding taxes and paying FICA taxes). Lay supply pastors do not benefit from housing allowance regulations.
There are NO CIRCUMSTANCES where appointed or assigned pastors in the South Georgia Conference are independent contractors.
THE DEPARTMENT OF LABOR will treat your pastor as a church employee. They are covered by applicable labor regulations. Conference rules REQUIRE the church to have Worker's Compensation insurance on the pastor.
IN THE LOCAL CHURCH, it depends. If your local church has a personnel manual or personnel policies, the SPRC may require that pastoral staff abide by those regulations in the same manner that other church employees do. HOWEVER, The Book of Discipline and the Standing Rules for the annual conference provide some specific requirements (such as vacation, continuing education, and attendance at sessions of the annual conference) which the church may not restrict or replace.
Sometimes people think that because we are a church, we're not subject to these tax and labor laws -- not so! There are numerous current cases where churches are being fined for failing to follow IRS payroll rules. Sometimes people are just aggravated about the bother of it all, and don't want to go through the hassle! People have said to me, "Well, we never had to do it before." (Which really means either we never knew about it before or we've never been caught and penalized for not doing it.) I go back to the teachings of our Lord. Jesus was asked specifically about whether or not disciples needed to obey secular laws. His reply was clear and unequivocal: Then He said to them, “So give back to Caesar what is Caesar’s, and to God what is God’s." (Mt 22:21) Our obedience to these laws is a form of our obedience to our Lord.
Like most things, getting everything set up is pretty involved, but once you have it set up, keeping it running is not very difficult.
Step One
First, your church needs a Federal Employer Identification Number (EIN). This is the business version of a Social Security number.
Not sure if your church HAS an EIN? Look on the W-2 -- it will be there. No W-2s? Call 1-800-829-4933 to find out. (I recommend you get a book and a cup of coffee or tea, as you're likely to be on hold for a while waiting your turn).
If you don't have one, you'll need to get one. To apply for a FEIN, go here. This is the first step to be able to give your pastor a W-2, or give contractors a 1099.
Step Two
Once you have your EIN, you'll need to register to do the W-2 and W-3 online. You register with the Social Security Administration's Business Services Online (BSO). BE SURE to safely note your login and password. You'll likely only use this website once a year, and it's easy to lose track of the login information.
Step Three
Once you have your EIN and a login at the BSO site, you're ready to complete the W-2.
That's pretty much it, if the pastor is your only employee. The IRS says if the pastor is your only employee, and you are not withholding taxes, you do not need to worry about filing quarterly 941s.
The pastor's compensation form from Charge Conference provides little notes on the far right column to tell you where each item goes on the W-2. We also have more information on how to do the W-2 on this page.
We provide resources concerning tax details for clergy and local churches here.
If you'd like help determining if any other persons you pay are employees or independent contactors, look here. It is likely that most of the people whom the church pays are actually employees.
Disclaimer: The South Georgia Conference does not engage in offering direct tax advice to clergy or congregations. The South Georgia Conference Office of Administrative Services has provided the content of this page for general informational purposes only. You should not substitute this information for personal consultation with a qualified professional in the field, nor should you solely rely upon this information in taking any action.