Church and Minister Payroll in Kentucky
Payroll for churches in Kentucky, done by a licensed CPA: minister pay and housing allowances, staff payroll, tax deposits, quarterly filings, and W-2s. Serving Southeastern Kentucky churches.
I run payroll for churches in Southeastern Kentucky, including the part most payroll services get wrong: the minister. Ministers are treated as employees for income tax but self-employed for Social Security, their housing allowance has to be designated ahead of time, and their W-2 looks different from everyone else's. I handle all of it, along with regular staff payroll, deposits, quarterly filings, and year-end forms.
Why minister payroll trips people up
A pastor's pay doesn't fit the normal boxes. No Social Security or Medicare is withheld, because ministers pay self-employment tax on their own. The church can designate part of the pay as a housing allowance, which is excluded from income tax if it's set up before it's paid and documented in the minutes. Some ministers ask the church to withhold extra income tax to cover their self-employment tax, which is allowed, but it has to be reported the right way.
I've seen churches that withheld FICA from the pastor for years, churches that never documented the housing allowance, and churches that paid the pastor as a contractor on a 1099. All of those cost somebody money. None of them are hard to fix going forward.
What church payroll includes
Pay runs on your schedule for ministers, office staff, musicians, nursery workers, and anyone else on the payroll. Federal and Kentucky withholding deposits. Quarterly 941s and Kentucky filings. W-2s in January, and 1099s for the people who really are contractors, like a guest speaker or a repairman.
Getting it set up
We start with a short review of how everyone is currently paid. If something needs to change, I write it up for the finance committee or the deacons so the decision is documented, and then payroll runs clean from the next pay date.
Chris Bingham, CPA, MBA
Licensed Kentucky CPA. I spent more than twenty years as an accounting manager and controller for coal and manufacturing companies, and I’ve worked in Southeastern Kentucky since 1996. These days I keep the books for churches, nonprofits, coal operators, and small businesses across the region.
What people ask.
If your question isn’t here, call and ask. I’d rather talk it through than have you guess.
In almost every church, a W-2. A minister who serves one congregation is an employee for income tax purposes, even though they pay self-employment tax on their own.
Related pages.
Want to talk it over?
Call, email, or send a note. Tell me a little about your church or business and I'll get back to you.