Calculate Them Correctly!!
Churches seeking to truly bless their pastor(s) should remember that checks and gift cards given on Pastor Appreciation Sunday are taxable income to the recipient. To truly bless its pastor, the church can (and should) “gross-up” the payment for taxes by:
15.3% for SECA tax, and
[?%] for Federal and State income tax. We frequently recommend using 15% Federal income tax and 5% for State income tax as estimates. (The Federal rate depends on the pastor’s actual form 1040, and is likely not known by the church.)
So a church wanting to put a $250 gift card in the Pastor’s hand would calculate the transaction by dividing $250 by 1-35.3% -or .647 = $386.40 gross pay.
The church would give the pastor the $250 card on Sunday in front of the congregation. It would process $386.40 as salary in the payroll and $136.40 as voluntary FITW and SITW (or put that cash in their paycheck if no withholding is being done), and a prepayment of $250.
If the gross up is not done, the clergyman has $250 to spend at Home Depot in October – but will likely have to pay about $88.25 on their tax returns on April 15 (a net benefit of $161.75).
Quality payroll services should not have a problem entering these transactions into the pastor’s payroll record. Contact the Wisdom over Wealth payroll team (Kaitlin DeWitt and Laura Picard) for answers to any questions at 877-823-3101.