As for retirement contributions, whether such are reported or not on the participant’s Form W-2 depends on whether the contribution was made by the church or by the pastor/staff person through salary reduction. In the Treasurer’s Manual, we answer this question as follows:
Contributions made by the church on behalf of the minister or a church-related employee are not required to be reported at all on Form W-2. In addition, amounts contributed to the retirement plan by a salary reduction agreement are also not includible in Box 1 on the W-2 form as wages. However, on Form W-2 the “retirement plan” box should be checked in Box 13. In addition, any amount contributed by salary reduction agreement must be reported inBox 12 of the W-2 form, using the code “E”. For example, if a minister reduced his salary by $5,000 to make contributions to his retirement account, that amount would not be included in Box 1 of the W-2, but “retirement plan” would be checked in Box 13 and Box 12 would report “E – 5000.00.”
As an additional note, church treasurers should be aware that retirement plan contributions made by the church are not considered wages for Social Security tax purposes. In addition, two separate Revenue Rulings (see Revenue Ruling 68-395 and Revenue Ruling 78-6) seem to suggest that even salary reduction retirement contributions made by ministers do not necessarily constitute self-employment earnings for purposes of determining Social Security tax liability.
Simply put, contributions made by the church are not taxed, nor are they reported on the minister or employees’ W-2.
Salary reduction contributions made by a minister are not included in Box 1 income, are listed in Box 12 (E code), but are not taxed for federal income tax purposes nor are they taxed for Social Security/Medicare purposes.
Salary reduction contributions made by a church-related employee are not included in Box 1 income, are listed in Box 12 (E code), are not taxed for federal income tax purposes, but are taxed for Social Security/Medicare (FICA) purposes.
A simple rule to determine whether the contribution is a salary reduction contribution or an employer (church) contribution is this: If the pastor/employee is entitled to $100 salary, for example, and gets that amount, but the church makes a contribution above and beyond that of say $10 to his retirement account, the $10 contribution is a church-made contribution. Just assuming that alone, the $100 would show up inBox1of the person’s W-2 – but the $10 contribution to the retirement plan is not required to be reported anywhere.
Further, if the person is entitled to $100 (and whether the church makes a contribution or not), he directs by a salary reduction agreement that $15 be sent to the retirement plan, then only $85 would show up in Box 1 on his W-2 form and Box 12 would show an E code with $15. The $15 is a salary reduction contribution.
For more specific directions on completing the Form W-2, please see the directions provided by the IRS with the W-2.