We are writing 2 separate checks to our pastor. One is a payroll check for his salary and the other is out of our payables for the housing allowance. On the W-2 we took his salary and reduced it by the housing allowance and reported this to the IRS. Is this correct?
Yes. As you stated the housing allowance should be subtracted from his wages and then his wages are reported in box 1 and if your state has income tax…in box 16.
The church is not required to report the minister's Housing Allowance to the IRS. However some churches choose to report it in Box 14 of the minister's W-2 (which is labeled “Other”) as a courtesy to the minister.
Or, churches can just include the amount of the housing allowance in a separate letter to the minister. (This separate letter should not be sent to the IRS and will not be included or attached to the minister's personal tax return.)
As far as writing 2 checks to your pastor, that is fine. You can write it on one check or 2 separate checks...the choice is yours...as long as it is separated in your payroll records and accounting.
Hope this helps.
Church Accounting Package
Join in and write your own page! It's easy to do. How? Simply click here to return to Housing Allowance.
If you want to DIY your payroll, I highly recommend you look at using Gusto! It is very user friendly and their support is awesome! Plus they know how to set up and maintain payrolls for churches and nonprofit organizations.
Note: I am a "partner" of Gusto, but as I have told you before ... I never recommend anything that we or our clients have not tried and love =)