More W-2 Tips
A W-2 form must be issued to any employee (including ministers) who received compensation from the local church during the previous tax year. In completing the forms, here are a few tips to remember:
- The W-2 forms must be completed and issued to each employee by no later than January 31. The employer/church must then make sure that they submit to the Social Security Administration “Copy A” of each W-2 form and the W-3 transmittal form by no later than the end of February.
- You can obtain blank W-2 forms from your local IRS office, your local post office, or by calling the IRS toll-free forms number (1-800-TAX-FORM).
- All dollar entries on the W-2 should be made without dollar signs and commas, but with a decimal point and cents. For example, $1,000 should read as “1000.00.” If you put down 1000, the IRS scanning equipment will read that as $10.00 – so make sure that decimals and cents are used.
- If a box on the W-2 does not apply, leave it blank. Do not insert “0” or “N/A.”
- Make sure that you use the correct employer identification number (EIN) for the church/employer. This is critical especially if you have more than one entity (such as a church school) operating under a similar name.
- In identifying employees on the W-2 (Box e), do not include titles, such as Rev., Mr. or Dr. Also, do not include suffixes such as Jr. or Sr.
- Make sure that the ministerial housing allowance or the fair rental value of the parsonage is not included in Box 1 wages. However, do include insurance assistance payments provided to pay individual healthcare policies.
- Check the retirement box in Box 13 only if the minister or church-related employee participates in a recognized retirement plan, such as the MRP.
- Make sure the ink on the W-2 is not too faint, and that the writing is legible and not too small.
- If you need additional assistance in completing the W-2 form, do not hesitate to contact the Benefits Board for general information or for specific information, you may call the IRS directly at 1-866-455-7438 for assistance.
Tax Tips – Items NOT Considered Reportable Income for Ministers
While no one should ever hide income, there are several items that can legitimately be excluded from taxable income for ministers. One of the major items excludable from taxable income is contributions to the Ministers’ Retirement Plan. Contributions made by the church on behalf of the minister 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 on line 13. In addition, any amount contributed by salary reduction agreement should be reported in Box 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.”
Additional items excluded from reportable taxable income include group term life insurance premiums for policies up to $50,000, fringe benefits (GROUP medical insurance premiums, disability insurance, etc.), qualified reimbursement of moving expenses, business expense reimbursement under an accountable plan, and the minister’s housing allowance (not considered as income but is taxable for self-employment taxes). None of the above-mentioned items should be included in Box 1 of the W-2 form. Keep in mind that non-ministerial employees do not receive the housing allowance benefit. If the church pays the housing of the employee, it is still counted as reportable income. Additionally, retirement plan contributions made by a salary reduction agreement for non-ministerial employees are excluded from their reportable income for tax purposes, but must be included in their income for Social Security and Medicare purposes.
** Please refer to the Tax Information Manual on our website for more information concerning these topics.