Many churches are unsure of the correct way to setup their pastor’s salary using PowerChurch.  Starting with version 11, the payroll module was completely redone.  However, many churches still use versions 10.4 and below.  Depending on the version you have, here are a list of guidelines you can follow to correctly set up your pastor’s salary:

Correct Pastor Salary Setup: Payroll – Maintain Item Descriptions

  • Version 10.4 and earlier
    • Item Information Tab
      • Income
      • Taxable Income – Yes
    • W-2 Tab
      • Check Box 1: Wages, Tips, other compensation
      • Church Box 16: State wages, tips, etc.
  • Version 11 through 11.5
    • Type of item
      • Income
    • Tax options
      • More options
        • Check Federal Withholding Box
        • Check State Tax Box

In addition, here is some useful information that will help you set up your pastor’s payroll:

  • Pastors are considered dual status employees.  In other words, they are employees for federal and state income tax purposes.  They are self-employed for social security and Medicare tax purposes.  They are the only ones in the IRS Code with this status.
  • Any tax thee church withholds from a pastor’s paycheck must be considered either state tax or federal tax – NOT social security or Medicare tax.  Your pastor may have you withhold enough to take care of his/her social security and Medicare taxes.  That is perfectly fine.  However, that amount will need to be considered as part of the federal tax withheld.
  • The pastor’s salary is included in Box 2 of the Federal 941 returns and Box 1 of the pastor’s W-2.
  • The pastor does have to pay social security and Medicare taxes, but these are handled on his/her personal income tax return as self0-employment taxes.

For more information and videos about pastor salary, taxable gifts, non-taxable gifts, small church accounting or church payroll visit CPAchurch.com or visit our YouTube Channel.