Called by God to Start a Church in Port St. Lucie, Florida . . . Now What?
By Raul Rivera
How does one start?
When Pastor Alvin heard from the Lord to start a church, he responded with a strong yes, but he wondered how it would be possible if both he and his wife had full time jobs. Where would the time come in order to launch the church? Where would they start? An even bigger question was, "How would they start?" After they found us (Startchurch), we immediately began to set up all of their legal paperwork-from incorporation to constitution and bylaws, ordinations and 501(c)(3) status-while they focused on the ministry side of winning the lost and inviting people to a Bible study at their own home. All of this they did while each working fulltime jobs and paying $125.00 per week in childcare costs. From the day that Pastor Alvin heard God's voice to start a church, he made an inner vow that even if his church never grew beyond a few people, he would stay faithful to fulfill his call as the pastor of that church. Sure enough, within 9 months they had 57 people attending services in their small and newly rented building. By the end of the first year, the church began to pay him a small salary of $150.00 per week with the goal of one day raising it to a full time salary.
Knowing how to do payroll for a minister is something very few people know. Pastor Alvin had no idea how to do it and the payroll company they were considering did not either. The problem was that the payroll company "did not know" that they did not know how to do payroll for a pastor.
Payroll for a Minister Really is Different
When Pastor Alvin contacted the payroll company, they asked him for the right information but they did not know that a minister is treated differently for tax purposes. Many payroll companies do not know that a church is not allowed to withhold taxes on the minister's paycheck, and therefore when they set up a minister they treat him the same as they would any regular employee. Making this error means that the church withholds approximately 20% of his paycheck for taxes and the church itself pays an additional 7.65%, plus Federal and State unemployment, all the while not knowing that there should not be any taxes withheld. Moreover, in most states, churches are exempted from State unemployment taxes and in all states they are exempt from Federal unemployment tax.
What Should Pastor Alvin Do?
The best course of action is to know the law and follow it. Let me share with you how it should be done. When the church's only employees are ministers, the church ought to do its own payroll. Why? Because it is simple and with the right tools it can be done by one person. Let me show you how?
1. The church creates a pastoral compensation policy
2. The church creates a Housing Allowance designation
3. The pastor applies for self-employment tax exemption
4. A compensation contract is drafted by a member of the board of directors
5. The church board of directors votes and approves the Housing Allowance designation and compensation contract
6. The church pays the pastor a weekly/biweekly check according to the terms of the compensation contract
7. In January, the pastor prepares the housing allowance statement to report qualifying housing allowance expenses
8. The church tallies the grand total of all paychecks paid to the pastor and reports them on a W-2 and W-3 form and sends it to the SSA.
9. You are done!
Okay! Okay! Maybe it's not that easy! But wait, it really is! It is just that it does not look easy at first glance. Steps 1-5 are done only one time and we can do them for you. After that, all the church has to do is write the checks and tally them up to report on a W-2 and W-3 form. While all the pastor has to do is fill out a housing allowance statement to report qualifying housing allowance expenses.
How Does the Church Fill Out a W-2 and W-3?
Let me introduce you to a software program that we created here at StartCHURCH. It is called the W-2 and 1099 Tax Kit. This program makes doing your payroll so easy, you will wonder why any church pays money to have its payroll done. The W-2 and 1099 Tax Kit makes it so easy that all you have to do is enter three numbers into the program and in a snap, you will be ready to click the print button for the W-2 and W-3 to come out.
Let Us Show You Step-by-Step
We conduct approximately 26 conferences per year in different cities across America. Every year, hundreds of pastors come to our one-day conferences and get the instruction they need to better structure their churches on a solid foundation. Whether its taxes, protecting the pastor, increasing the church's income or IRS compliance, the one-day conference will help propel you forward to greater measures of success. For many church leaders, the business side of church is something they usually think about in bed as they stare at the ceiling, losing sleep and wondering if they are doing it right. You don't have to wonder. Let us empower you. Click here to see a list of upcoming conferences! You have nothing to lose, except sleepless nights.