TOPIC: QBooks and Clergy W-2 FILE: 2025-07
UPTD: April 25, 2009TOPICAL OVERVIEW: Dialog with a HOMER and a CHRISTIAN FAMILY UNIT mentioned within this SPENDING CONTROLS web site. This Dialog is on the subject of setting forth some of the specifies as to how a HOMER would help a Church (for instance) who uses QuickBooks (QBs) for their clergy payroll needs. Issues include the Church providing their clergy with a Parsonage and Housing Allowance and reporting of such matters re the annual W-2 (or Form 1099) , plus an annual Clergy Letter.
Onliner "A":
Such matters are handled by tax people in a variety of ways, it is an inexact science, but my personal view follows the fact pattern and grid below.
Onliner "1":
Thank you. But what about making the $12,000 and the 403b information known; especially the $12,000 as this might be subject to self-employment tax? Maybe that is what you mean above by the Clergy Letter.
Onliner "A";
As mentioned above, this seems to be done in different ways by tax preparation professionals as they interpret this unique area of the law. As a retired CPA, my view is that the Clergy W-2 boxes should only contain essential taxable income information so as to not clutter. Plus various payroll outsourcing services can not adequately insert all of the relevant Clergy data and the Ministry ends up amending and re-submitting each year.
Please note the sample Clergy Letter below where relevant information is communicated to those who should know.Suggested content of annual Clergy Letter
Dear Rev. xxxxx
Enclosed is your W-2 for the year xxxx. Please be aware of such matters as the following:
1> This is the "See attached Clergy Tax Letter" referenced as a footnote to your W-2 .
2> Your Clergy taxable income was $xx,xxx.xx. See W-2 block 1.
3> During the year, at your request, we withheld $x,xxx.xx of Federal Income Tax from your pay checks and remitted it to the IRS along with such employee withheld taxes. The amount is shown in block 2 of the enclosed W-2.
4> We also withheld $xxx.xx of XXXXXXX State Income Tax from your pay checks and remitted it to the state taxing authority. See above comments about form W-2.
5> We did NOT withhold (or match) and remit any employee Social Security and Medicare taxes from your pay checks. This is not appropriate since you are a self employed clergy who might file and pay Federal Self Employment taxes.
6> As you know, at the first of the calendar year, you were authorized an annual Clergy Housing allowance of $xx,xxx. You received this in installments during this past year.
7> You did NOT receive any other allowances from the Church. During the year you were reimbursed for business/church use of your personal auto at the prevailing IRS mileage rate.
8> As to retirement matters, please be aware of the following:Total payments during the year were: xxx.xx
Withheld from your pay checks xxx.xx
Balance paid by the Church xxx.xx
Type of plan is xxxx9> We are told that some tax preparers advise you to attach a copy of this "Clergy Tax Letter" to your filed tax returns
If you or your tax preparer has any questions about any of these matters, please contact the Business office. Thank you.
Sincerely,
Church TreasurerOnliner "1":
Very very helpful - thank you. Any other matters that would assist us in this process.
Onliner "A":
Yes, it is vital that you use the appropriate QBooks "Payroll Items" in order for them to produce the applicable annual W-2. Please click here and learn more about such matters and the availability of a Sample Clergy QBPro2003 file; if that does not give you enough help along these lines please contact us Jim@bcidot.org Thank you.
If for some reason the QBooks produced W-2 for the current year is not correct, then you will need to prepare a corrected W-2 and send a copy via form W-3c. Then, of course, you need to use the appropriate QBooks payroll items for the new calendar year so it will be done properly in the future.
Click here for resources from fellow CPA Dan Busby on most all of these topics.
As most of you know, we here at www.bcidot.org dialog by email with Onliners regarding Ministry Finance (MinFin) issues. Above is an "Edited Onliner Dialog", or an edited version of an actual dialog with one of you, but we have honored your privacy and have not used your name or that of your Ministry. Our purpose is to take this information and make it available to any interested Ministry Finance Team (MFTeam) so you can learn from one another. Let us know if you would like to dialog on a Peer to Peer basis with the other Onliner involved and we will try to put the two of you together.
Thanx - Jim Bramer - Proverbs 9:10