Pastors’ Compensation Explained
Pastors have complicated, multi-faceted compensation packages. At a minimum, clergy compensation includes salary and housing allowance. It also can include a variety of stipends. In today’s blog post, we break down the parts of pastoral compensation, identify the most common stipends, and (if you’re an Auxilio client partner), where you’ll see each aspect of compensation show up on your paycheck.
Before digging in, if you have not read our previous post, Income and SECA Taxes for Clergy, we recommend taking a few minutes to read that first. With that overview in mind let’s look at how pastors can be compensated financially.
Salary: Salary is your base pay minus your housing allowance. You may receive other gross earnings in the form of stipends (covered below) that are part of your total compensation.
On your paystub: Salary is listed first under Employee Gross Earnings. It will show the per-pay-period amount. You can see your annual salary listed in your Gusto profile.
Housing Allowance: See our previous blog post on Housing Allowances to learn about how Housing Allowances are determined and structured. Pastors do not pay Federal Income tax on their housing allowance, but they must include it when they calculate the 15.3% they owe for SECA taxes.
On your paystub: The Housing Allowance is not listed under Employee Gross Earnings. Instead it is listed under the Summary as a reimbursement in the very last section of your pay stub.
SECA Allowance: Members of the clergy are considered self-employed for tax purposes, so they pay SECA (both the employee and employer portions of Social Security and Medicare). Some churches choose to provide pastors with the portion of that tax (7.65% of salary + housing) they pay for non-clergy employees as a taxable stipend.
On your paystub: A SECA Allowance, if your church provides one, will be listed under Employee Gross Earnings since it is a taxable earning.
Health Stipend: If your employer does not have a group health plan or a Health Reimbursement Arrangement (HRA), it may provide you with a payment to help cover your own health plan (i.e. plans purchased through healthcare.gov or your local exchange). These payments must be made as a taxable stipend rather than a reimbursement.
On your paystub: A Health Allowance would be listed under Employee Gross Earnings since it is a taxable earning.
Fringe Benefits: Your employer may offer other benefits, such as a contribution toward your cell phone, gym membership, counseling, or other wellness expenses.
On your paystub: These fringe benefits would be listed under Employee Gross Earnings since they are taxable earnings.
Imputed Wages: You may also see the premiums paid for Life and Disability Insurances listed under Employee Gross Earnings. The premiums are taxed as imputed wages since though the company pays the premium, the employee is responsible for the tax on the premium.
On your paystub: Imputed wages such as Life and LTD would be listed under Employee Gross Earnings since they are taxable earnings.
Taxes: If you are paying quarterly estimated taxes, you may want to put into effect a payroll deduction to cover your SECA tax. Ask your Auxilio Partner Strategist to calculate extra federal withholding (14.1% of all compensation, as recommended by Geneva Benefits Group). By adding extra withholding, you are paying those taxes per paycheck and will no longer have to make estimated quarterly tax payments.
On your paystub: Extra federal withholding will be lumped together with Federal Income Tax and listed under Employee Taxes Withheld as Federal Income Tax. You can see the specific per pay period extra withholding amount in your Gusto profile.
If you have questions about your compensation or how to read your paystub, talk to your Auxilio Partner Strategist. If you’re not yet a client partner, contact us to learn how we can serve your church or faith-based nonprofit and reduce your administrative burden to free you up for ministry.