Q: How does completing the annual IRS Form W-2 differ between ministers and non-ministers?
A: The IRS Form W-2, Wage and Tax Statement is used to report an employee’s total gross wages and taxes withheld during the calendar year. As a reminder, employers are required to withhold federal income taxes and Social Security taxes from their employee’s wages, deposit these taxes with the IRS, file quarterly tax returns (Form 941), and issue W-2 forms to employees.
However, special rules and exceptions exist for ministerial staff, so here are some key points to remember when completing W-2 forms.
- Properly include all wages and taxable income in box 1. This includes taxable fringe benefits.
- Ministers (as defined by the IRS) are exempt from federal tax withholding, but they may elect voluntary withholding of both income taxes and self-employment taxes like an employee. Box 2 of the W-2 should be blank unless the minister has elected voluntary withholding.
- Ministers are also treated as self-employed for social security purposes. Therefore, FICA and Medicare taxes are not withheld. Boxes 3 through 6 of the W-2 should be blank. A minister who is subject to self-employment tax and has not opted out of Social Security should report their own income from self-employment (taxable income plus housing) on Schedule SE of their personal federal income tax return.
- Ministers who receive a housing allowance or parsonage allowance may have the housing allowance amount reported in box 14 of the W-2, although this is not required. The housing allowance amount should not exceed the amount authorized by the board at the beginning of the year.
Remember, the W-2 form must be provided to the employee by January 31.
