P&B’s Compensation & Tax Memos are designed to help pastors and church treasurers, with various clergy and church financial matters, such as retirement, Social Security, taxes, business expenses, ministerial compensation, church audits, and more. Each memo is reviewed annually for accuracy by certified public accountants, to assure you’re getting the most accurate information.
Below is a list of our Memos, along with brief descriptions, to help you identify which will be the most beneficial to you.
| Memos |
| Memo #1 - Housing for Your Pastor: Parsonage or Housing Allowance? "Should we continue to provide a parsonage and utilities or should we change to a cash housing allowance and let our pastor buy his own home?" Across our denomination this difficult question is being asked, often out of genuine concern for the pastor's dilemma at retirement, when he or she has no real estate investment built up for a retirement home. |
| Memo #2 - Church Employees or Independent Contractors? Dear P&B: The only employee we have besides our pastor is a part-time custodian (or secretary). Do you know of any way we could pay them by contract and save the trouble of withholding income taxes and Social Security/Medicare (FICA) taxes?" In one form or another, this question has been asked literally hundreds of times in financial seminars, correspondence, and telephone conversations. The questions come as a response to the increasing responsibilities of churches and other employers for reporting employee compensation information to the IRS. Fortunately, the answer is fairly straightforward. |
| Memo #3 - Tax and Reporting Procedures The tax and reporting requirements with which churches must comply often seem to complicate the task of the local church treasurer. Many treasurers who volunteer their services to the church feel the special tax treatment of ministers adds another level of complexity to an already time-consuming task. Following is an overview of many of the basic federal tax and reporting issues. |
| Memo #4 - Strategies for Structuring Ministerial Compensation A review of the patterns of ministerial compensation over several decades would indicate that significant changes have taken place. Because of many social changes, gone are the days when the majority of ministers received a large portion of their compensation in the form of food and clothing supplied by members of the congregation. The implications of the 1986 Tax Reform Act and subsequent IRS regulations are also among the reasons causing these changes. |
| Memo #5 - Minimizing Income Taxes for Church Employees One of the many responsibilities that church boards face is that of minimizing income taxes for their church employees by appropriately structuring their compensation package. IRS tax rulings not only make this possible but also make it very important. Unfortunately, some church employees pay additional income taxes simply because of the way their church employer has established their salary structure. Changing IRS regulations and current rulings make it all the more important for church boards to periodically review the salary structure of all their employees. |
| Memo #6 - Housing Allowance in Retirement Under current IRS provisions, retired ministers who are ordained or district-licensed in the Church of the Nazarene may receive up to 100 percent of Pensions and Benefits USA-administered retirement plan payments as housing allowance. Of course, any tax-free housing allowance, whether received from the Basic Pension or General Church Pension portion of the Nazarene Single Defined Benefit Plan, the World Mission Pension Plan, or the Nazarene 403(b) Retirement Savings Plan, must satisfy tax code limits. |
| Memo #7 - How Much Do We Pay the Minister Scripture specifically speaks about the importance of caring for and supporting pastors. In fact, the relationship between pastor and flock is intended to be one where each cares for the other. The pastor is called to preach the Word and shepherd the flock, while the congregation’s role is to provide material support and encouragement for its shepherd. Use this Compensation Calculator to approximate the minister's salary package. The calculator can be used in the church's annual budget process and to satisfy the denomination's salary review requirement. Comparison data is available on the Report page. |
| Memo #8 - The Annual Church Audit Church board members have a long list of responsibilities. Among these is the responsibility for the money that flows through the church. It’s such an important issue that the Manual contains at least three paragraphs about it. |
| Memo #9 - Workers' Compensation Laws and the Local Church Workers’ Compensation laws exist in all states and Canada. They are designed so that benefits (both medical and disability income) for the work-related accident, injury, or illness can be paid promptly without the need for expensive legal fees to determine fault. Medical benefits have no dollar or time limits and cash benefits are paid for lost wages due to impairment or disability. In severe cases, medical and vocational rehabilitation benefits may be provided. |
| Memo #10 - Can Ministers Opt Out of Social Security? The Tax Code does provide a means for some ministers in some denominations to exercise an option to terminate Social Security/Medicare coverage for their ministerial earnings. IRS Form 4361 must be used, and it must be filed on the correct basis of religious belief. If approved by the IRS, only earnings from ministerial services are exempt from self-employment tax. Form 4361 indicates that once the exemption is approved, you cannot revoke it. |
| Memo #11 - Auto and Other Business Expense Reimbursements Churches can be better stewards and help their pastors save tax dollars by establishing accountable expense reimbursement plans. Learn how with this memo. |
| Memo #12 - Who is a Minister for Tax Purposes? “Who is a ministerial employee for tax purposes?” The answer is significant because it affects how an individual reports compensation and pays taxes. Perhaps the greatest single issue this affects is how to report the value of housing provided and/or the amount of housing allowance paid. |
| Memo #13 - The Minister's Housing Allowance A substantial tax benefit is provided to qualifying ministers based on Section 107 of the Internal Revenue Code (IRC). It consists of only one sentence which currently states that: “In the case of a minister of the gospel, gross income does not include — (1) the rental value of a home furnished to him as part of his compensation; or (2) the rental allowance paid to him as a part of his compensation, to the extent used by him to rent or provide a home and to the extent such allowance does not exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities.” |