Church payroll: who are you paying?
Pick the person you're paying to see what to take out of their pay, the forms to file and the mistake churches make most.
Who are you paying?
Paying your pastor
- What to take out of pay
- Don't take Social Security or Medicare tax out of your pastor's pay. These are the federal taxes that pay for retirement benefits and for health insurance after 65. Take out income tax only if your pastor asks you to and the church agrees. This is called voluntary withholding. Withholding just means taking tax out of pay, and voluntary means your pastor chose it.
- Social Security and Medicare
- Your pastor pays these two taxes as self-employment tax (SECA is its short name), on their own tax return, the yearly form people send the IRS. Most pastors pay it to the IRS, the federal tax office, in four payments during the year. Other pastors have the church take a bit more income tax out of each paycheck, enough to cover their Social Security and Medicare tax too.
- Forms
- For income tax, your pastor is still a church employee. So at the end of the year, give your pastor a W-2, the yearly pay form. On the W-2, leave the housing allowance out of the pay total. Leave the Social Security and Medicare boxes empty.
- Watch out for
- A housing allowance is pay set aside for your pastor's home, and it can be free of income tax. The church must approve the amount in writing before paying it, for example in the written notes of a board meeting or in the budget. If the amount is decided afterward, it can't be tax-free.
Paying other church staff
- What to take out of pay
- Take out federal income tax, the tax paid to the national government. Each new worker fills out a W-4, a short IRS form that says how much tax to take out. Also take out Social Security and Medicare tax. The church also pays its own share of these two taxes, the same amount as the worker's.
- Taxes you don't pay
- Churches don't pay federal unemployment tax, the tax most employers pay toward unemployment benefits. So there is no yearly unemployment form (Form 940) to file.
- Forms
- Four times a year, send the IRS Form 941, a short report of the pay and the taxes. The report for January to March is due April 30. April to June is due July 31, July to September is due October 31, and October to December is due January 31 of the next year. After the year ends, give each worker a W-2 by February 1. Send copies to the Social Security Administration, the government office that keeps pay records.
- Watch out for
- Some churches have sent the IRS Form 8274, saying that for religious reasons they won't pay Social Security tax for their staff. If yours has, don't take Social Security or Medicare tax out of your other staff's pay. Each of them pays it on their own tax return instead. It's worth checking the church's old records before the first payday.
Musicians, nursery workers and contractors
- Employee or contractor?
- It depends on who decides how the work is done. If the church sets the hours, says what to do and pays them each week, they are staff, with a W-2 and taxes taken out as usual.
- Forms
- A contractor runs their own business, so you take no tax out of their pay. You may need to send them Form 1099-NEC instead, the IRS form that reports what you paid them during the year.
- Watch out for
- Part-time work doesn't make someone a contractor. Someone the church schedules every week is usually an employee.
Church payroll gets easier once you know who you're paying, because your pastor, your other staff and your helpers are each taxed in their own way. If you put someone in the wrong group, the church may later have to pay the taxes that should have come out of their pay.
Who counts as a minister
For tax purposes, a minister is someone your church or denomination has formally appointed. A denomination is the larger church organization your church belongs to. Depending on the church, this appointment is called ordination, a license or a commission. The name differs, but each one means the church has officially made the person a minister. It lets the person lead worship and services such as communion and baptism, as the IRS guide for ministers explains.
If you aren't sure whether someone on staff counts, look for their ordination, license or commission papers. You can also ask your denomination.
The clergy payroll guide goes through the pastor's W-2 box by box. The SECA calculator shows how much your pastor should put aside for self-employment tax, the Social Security and Medicare tax they pay for themselves.
How much of the housing allowance is tax-free?
Your pastor pays no income tax on the housing allowance, up to a limit. The tax-free part is the smallest of these three amounts:
- the amount the church set
- what your pastor actually spent on the home
- what a similar furnished home would rent for, plus bills such as electricity and water
You don't have to compare them yourself. The housing allowance calculator finds the lowest one for you.
The allowance is free of income tax only, so your pastor still pays self-employment tax on it.
Church employee vs contractor
A contractor runs their own business and does a job for you, much like a plumber would. The IRS guide for employers looks at a few plain questions:
- Who decides when, where and how the work is done?
- Is the person paid by the hour or the week, or a set price for each job?
- Do they also work for other people, and advertise their work?
Treat someone as an employee if the church decides how they work, pays them by the hour or week, and expects them to keep working with no set end date.
Does a church musician get a 1099?
Not usually. A 1099 is only for a musician who truly works as a contractor. For example, a guest pianist who is paid a set fee to play at one wedding, and who plays at other churches too. If you pay a contractor $2,000 or more in 2026, send them Form 1099-NEC, the form that reports their pay.
An organist the church hires to play every Sunday for a weekly amount is different. That person is an employee, even in a part-time job. They get a W-2, and the usual taxes come out of their pay.
Church nursery workers on payroll
Most nursery workers are employees, because the church sets their hours and tells them what to do. Their pay has taxes taken out like the rest of your staff.
There is one small exception for churches and other charities, meaning groups that aren't run to make a profit. If the church pays someone less than $100 in a whole year, that pay is free of Social Security and Medicare tax. Income tax still comes out.
Should a worship leader get a 1099?
It depends on two things: whether your worship leader is a minister, and how the job works. If the church has made your worship leader a minister, follow the same rules as for your pastor. If your worship leader isn't a minister but leads every week for regular pay, treat them like your other staff.
A 1099 is only for a leader who has their own music business and sets their own price.
Get help running church payroll
Doing payroll yourself is fine with one pastor. As the forms and deadlines add up through the year, a firm that runs church payroll every day can take them over.
A firm that knows clergy rules replies by email with how it would run your church's pay and what it costs.
