The costs associated with supporting a minister fall into three categories. Compensation is paid directly to the minister. Benefits, with some exceptions, are paid to a third party on behalf of the minister. Expenses are operating expenses incurred by the minister on behalf of the ministry of the church. These costs are outlined in the letter of call initial agreement between the minister and congregation and the annual update to the letter of call.
Ministers have a dual tax status. Regarding federal income tax, they are considered employees and should receive form W-2. Regarding Social Security (FICA) and Medicare, however, ministers are considered self-employed. FICA and Medicare taxes are not withheld for ministers, and the employer does not pay an employer match of FICA or Medicare. The minister’s W-2 should show nothing in boxes 3-8. Ministers pay these taxes by paying self-employment tax and filing Schedule SE with their federal tax return.
A minister’s compensation breaks down as salary and housing allowance. Some churches or regions may also include a social security offset. The sum of these amounts equates to compensation in comparable fields when determining the minister’s compensation and benefits package.
The minister receives a cash salary which is subject to federal, state, and local income taxes. The employer may withhold these taxes and pay the withholding on behalf of the minister.
The minister may elect to designate all or part of their cash compensation as a housing allowance. Any housing allowance is not subject to federal income tax and is not included on box 1 of Form W-2. It is included in box 14. The housing allowance is considered part of the minister’s self-employment income for FICA and Medicare, subject to inclusion on Schedule SE.
The housing allowance must be approved by the administrative board of the organization and documented in board minutes. The minister carries responsibility, when filing their federal tax return, for demonstrating that the housing allowance was used for housing expenses. Any unused portion of the housing allowance is subject to federal income tax.
Social Security Offset
Because the employer does not pay matching FICA or Medicare taxes, some organizations pay a social security offset equal to 7.65% of salary plus housing. The social security offset is taxable, subject to federal income tax and considered part of the minister’s self-employment income. Many organizations have dropped this practice as Form 1040 takes this into account by adjusting income down by half of the self-employment tax due.
The most common benefits are pension, healthcare, paid time off, and sabbatical leave.
Many Disciples congregations and related organizations provide a pension benefit by paying Pension Fund dues on behalf of the minister. Employer dues are calculated as 11.5% of compensation. Employee dues are calculated at 2.5% of compensation. Most congregations and organizations pay the full 14% on behalf of the minister.
The congregation or organization may also choose to deduct a portion of the minister’s compensation and deposit the money into a tax-deferred retirement account—a 403(b)—on behalf of the minister.
When the Pension Fund ended the Church Wide Healthcare plan at the end of 2016, ministers, congregations, and organizations were left with decisions on how to provide healthcare benefits to ministers and other employees. The options include group healthcare plans, a benefit stipend or bonus, and healthcare reimbursement plans. Employee classes and related healthcare plans should be defined in the congregation or organization’s personnel policy or employee handbook.
Paid Time Off
Paid time off includes paid vacation. Some congregations and organizations, in addition to paid vacation, offer additional paid time off for personal retreat time. The amount of annual vacation time allowed may vary from as little as two weeks per year to as much as six weeks per year. Vacation time typically includes Sundays. Personal retreat time away may be one or two weeks per year and may or may not include Sundays. Congregations and organizations should have a personnel policy that defines paid time off for all employee classes.
Paid time off should be appropriate to tenure in the organization, tenure in ministry, and the culture of the congregation, organization, or community.
Many ministers receive sabbatical leave as a benefit. The sabbatical is paid leave from the congregation or organization for rest, renewal, study, and growth. The allocation of sabbatical time varies among organizations. However, a typical sabbatical plan offers a leave of three months after a consecutive employment period of five years or seven years. The minister continues to receive compensation during the sabbatical, so organizations offering sabbatical should reserve funds for expenses during the sabbatical period.
Professional and other expenses may be reimbursed to the minister, but they are neither compensation nor benefits. They operating expenses to the organization based on the organization’s job expectations of the minister.
Automobile Expense, Mileage Reimbursement
Ministers are typically reimbursed for mileage for pastoral visits, church meetings during non-business hours, and such. These are work-related expenses based on congregation or organization’s expectations. This use of the minister’s personal vehicle for church business creates fuel, maintenance, and deprecation expenses for the minister. The organization may reimburse these expenses based on mileage. The mileage reimbursement typically corresponds to the published IRS rates, which vary from year to year but in 2021 is $.56 per mile.
Meeting and Retreat Expenses
The church or organization may expect that the minister attend meetings such as regional and general assemblies. They may also require retreat time. In these cases, the organization pays registration, travel, lodging, and meal expenses on behalf of the minister, or they reimburse the minister for these expenses. Because this is an employer expectation, these are business expenses and not considered benefits.
The congregation may expect the minister to build up the congregation’s ministry library by providing a book allowance.
Relocation or Moving Expenses
In negotiating a call with a new minister, the minister and congregation or organization should plan to cover all or part of the minister’s relocation expenses. This negotiation should be settled before the minister or congregation agree to the letter of call. The initial letter of call should clearly identify how moving expenses will be covered. The congregation may choose to pay for the move through a moving service, in which case the minister should obtain three estimates and provide these to the congregation. The congregation may also choose to provide a moving allowance.