The Fine Print for Ministers’ Form W-2

magnifying glassHappy New Year! One of the most important action items for churches (and businesses) will be to distribute Form W-2s for all employees by January 31, 2013. For staff who are classified as ministers, the calculations are different from other employees. Here are guidelines for a minister’s Form W-2:

–         Ministers are almost always classified as employees for federal tax purposes and therefore receive a Form W-2, not a Form 1099.

–         However, for social security purposes, ministers are considered self-employed, and they pay the full burden of social security taxes. If your church gives a minister a stipend to cover the ‘employer’ portion of social security tax, then the stipend amount must be considered regular income, not a reimbursement.

–         Housing allowances are reported separately on the Form W-2, but not included in federal income. Other allowances, such as a car allowance, count as regular income.

–         Reimbursed business expenses do not have to be reported on Form W-2 (assuming an acceptable policy exists).

–         Make sure that you have not inadvertently withheld social security or Medicare funds during the year.

–         You must report the amount of employee health insurance costs paid by the employer on the Form W-2. This is new for 2012 as a reporting requirement of the Patient Protection and Affordable Care Act of 2010. There is no tax effect associated with this reporting.

Remember, if you do provide a housing allowance, you must have documentation regarding the responsible committee’s decision for the amount. For reimbursements, you also need a written reimbursement policy for the minister and all employees. If you are not sure whether other employees should be considered employees vs. independent contractors for income tax purposes, then please see the IRS explanation of independent contractor or employees.