If you have a pastor that was a DSA (District Superintendent Assignment) and is being appointed as a Local Pastor part of the year, you will need to make some changes in how you report wages on the 941 and W-2. Local Pastors are under appointment by the Bishop, which puts them into the clergy tax category. The pastor will now be eligible for the housing tax exclusion. The changes for processing the pastor’s pay are noted below:
Do not withhold FICA (Medicare and Social Security tax) from the pastor’s paycheck.
Do not pay the employer share of FICA for the pastor.
The pastor has the option of directly paying income tax on a quarterly basis or to continue having it withheld from his/her paycheck. If he/she chooses to pay income tax on a quarterly basis, do not withhold taxes from the paycheck.
If the church has authorized a housing resolution for the pastor, the amount indicated should be divided by the number of pay periods remaining in the year. The resultant number is the amount of the pastor’s paycheck that will not be reported as wages.
When completing the Form 941, report on line 2 the pastor’s wages minus the housing resolution figure for the pay period. Also do not report contributions to a cafeteria plan or to a tax-deferred retirement savings such as UMPIP.
When completing the Form W-2 at year end, include in Box 1 all taxable wages for the pastor while he/she was a DSA. This would not include contributions to a cafeteria plan or to a tax-deferred retirement savings such as UMPIP. Also include in Box 1 the taxable portion of wages after appointment as a Local Pastor. The taxable portion is the amount you included on line 2 of the Form 941.
Box 2, report the amount that was withheld for federal income tax.
Box 3, report only the wages when the pastor was a DSA.
Box 4, report the amount of Social Security tax withheld. This should be the amount withheld while the pastor was a DSA. There should be no Social Security tax withheld after the pastor is appointed as a Local Pastor.
Box 5, report only the wages when the pastor was a DSA.
Box 6, report the amount of Medicare tax withheld. This should be the amount withheld while the pastor was a DSA. There should be no Medicare tax withheld after the pastor is appointed as a Local Pastor.
Box 7, 8, 9 should be blank.
If the pastor has elected to participate in the Flexible Benefit Plan’s Dependent Care account, report in Box 10 the amount withheld from paycheck and sent to conference.
Box 11 will be blank.
If the pastor elects to participate in the Personal Investment Plan (PIP), report in Box 12a the amount withheld from paycheck and sent to the General Board of Pension and Health Benefits. Indicate Code E in the code box.
Box 13, check “Retirement Plan” to indicate the pastor participates in a retirement plan. This is for the pension payment the church makes on the pastor’s behalf.
Box 14 may be used to report the amount of paid to the pastor that was designated for housing. Be sure to note “Housing Allowance” in the box. Reporting this figure is optional.
Box 16 should be the same as Box 1.
Box 17, report the amount withheld for state income tax.
