Saturday, July 14, 2018
Hey Fletch … We are paying a pastor a sign-on bonus that has filed their 4361 and at the same time has a W4 with the church. What is the church’s responsibility when it comes to withholding taxes on the bonus? Does the church withhold zero taxes on the bonus since he is licensed and has filed 4361? Does the church withhold taxes per the W4 that the clergy has with the church ?
DRF—I’m so glad that this column preserves your anonymity. Otherwise, if the word got out that you were doing sign-on bonuses, you would be inundated with applications!
IRS Form 4361 is used for a pastor to opt out of Social Security for conscientious reasons. This must be done before the second tax year of a pastor’s religious employment and only pertains to money earned in religious employment. Whether the pastor has opted out of Social Security is not a part of this issue. Churches cannot pay into Social Security for pastors! Pastors pay into Social Security on their own through SECA at 15.3% of their wages.
Form W4 for a pastor is only used as a mechanism to ask the church to remit funds to the government for estimated taxes. The church is under no governmental burden to do so. The pastor can ask the church to make estimated tax payments from the sign-on bonus.
As a self-employed person for tax purposes, the pastor is responsible for all of their own taxes. The church is not responsible to take out taxes on regular wages or bonuses. If the church does respond to a pastor’s request to send in estimated tax payments, then the church will report that on the pastor’s W-2 statement.