After an Employee is Hired

Keep Comprehensive Payroll Records.

These include the amount paid to the employee, the amounts withheld or deducted for various purposes (taxes, Social Security, insurance, pension, etc.), and expense reimbursement documentation. You will need these records to prepare government reports and wage and tax statements (941s, W-2s, and 1099s).

You should keep payroll records for seven years.

Pay the IRS Regularly and Promptly

Report taxes withheld and the employer’s portion of FICA using the Form 941 coupons. You will receive these preprinted with your Employer Identification Number. The coupon is due either quarterly or monthly (or more frequently for churches with very large payrolls). Taxes may also be deposited by electronic transfer (telephone).

Quarterly. If payroll taxes are less than $1000 in a quarter, they can be filed quarterly along with Form 941. The money and 941 forms are due one month after the end of each calendar quarter (April 30, July 31, October 31, January 31).
Monthly. If your payroll taxes exceed $1000 per quarter, you must pay them to the IRS monthly. In this case, they are due by the 15th of the next month (March 15 for February’s payroll period).

If a church should, but doesn’t, withhold and pay payroll taxes to the IRS, the IRS can impose a penalty of up to 100% of the amount which should have been withheld as income and Social Security taxes. This penalty can be laid on the person responsible for withholding and paying the taxes.

In addition, substantial penalties await those who miss the monthly or quarterly deadlines--from 2% if you deposit the money within five days of the deadline, to 15% if the IRS sends you a delinquency notice and you don’t respond within ten days.

The 941 coupon and the check to the IRS must be delivered to the bank on time (most banks are authorized to receive IRS payments). Make a copy of the check and coupon before delivering them.

The 941 balance should be made up of federal withholding, FICA withholding from the pay of non-clergy employees, and then the same amount again as the employer’s portion of FICA (both employee and employer pay half, except in the case of ministers, who must pay it all themselves; churches can never withhold Social Security for ministers).

Your state may require that a state and county withholding form be mailed on a monthly basis. Make a copy of the check and form before mailing them.

Denominational Pension Program

Your pastor is probably involved in the denominational pension program. If so, after the last payroll for the month, write a check to the General Treasurer for the pension withholdings. There is a form to be filled out, with three copies to be made:

Send one to the General Treasurer with the check.
Give one to the minister.
Keep the third copy for the church’s files.

Send to: General Treasurer, 302 Lake St., Huntington, IN 46750. Copies of the forms can be obtained from the same address.