How to legally move payroll funds to restricted line item

by Sheri
(Graceville, FL)

Currently, our youth pastor does not want to take pay.

He would like to have the church take what he would get paid and move it from the youth pastor pay to a youth restricted fund account to be used for youth events/needs.

How can I do it legally?

Do we just vote on it and keep in our minutes that we are moving those funds monthly or do I need something more? Thank you!

Comments for How to legally move payroll funds to restricted line item

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Jan 09, 2023

Journal Entry BUT....
by: Vickey

Since no money is actually exchanging hands and no paycheck is going to clear the bank, I would do a JE (journal entry) and debit the Youth Pastor's salary line and credit the Youth Ministry's income account... BUT...

he needs to be aware that if he wants to claim that "offering" on his taxes... you need a "paper trail".

You should write out a paycheck for him (would need to be tracked and reported on a W-2) and he could endorse it and give back to the church for a offering to the Youth Ministry.

Better paper trail is for him to deposit his pay and then write a personal check back for that offering.

Without him actually receiving his pay and it being reporting as taxable income on a W-2...he is technically just "volunteering" his time...which is not considered a "charitable contribution" by the IRS and "donated labor" cannot be deducted on your taxes. See "Donated Labor and Service Contribution" on this page: https://www.freechurchaccounting.com/contributions.html

So to sum it all up...you could record the JE in your accounting records (include a memo)... BUT you could NOT record it as an actual donation on his "giving" record.

Jan 10, 2023

Contribution Limit
by: Jeff-CPA-CKA

If the intent is to claim the income from a salary and then claim the charitable contributions as an itemized deduction when given to the church, the minister will end up paying taxes on at least 40% of the income in the year he is paid. The IRS caps charitable contributions to 60% of of AGI. It seems reasonable to me that the minister offer to donate his time if the money earmarked for his salary go to the youth fund and have it approved by the congregation. I would also suggest that this be an annual election. If agreed, the adjustment should be made by journal entry.

Jan 12, 2023

Youth Fund
by: Sheri

Thank you both! The youth pastor is volunteering and doesn't want it as a charitable contribution. I will take the suggestion to make it an annual election (as long as he is in the position) and with it in the minutes, will make JE adjustment each month. I appreciate the feedback!

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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 =)

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