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In my bookkeeping practice, I encounter payroll mistakes within churches and nonprofit organizations of every size. <\/p>\n
Unfortunately, even those that utilize a payroll service or software may still be out of compliance, as many payroll providers lack the expertise to correctly set up and manage payroll for these entities. Such mistakes can lead to significant financial repercussions. <\/p>\n
Below are the six most common payroll mistakes I frequently observe in my work…<\/p>\n
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<\/div>\nMerry Christmas and Happy New Year!<\/span><\/p>\n Here is a 20% discount code for all the ebooks, spreadsheets, and packages on this site:\u00a0<\/span><\/p>\n b48eec12d9<\/b><\/span><\/p>\n expires Jan 10,2025<\/em><\/span><\/p>\n Note<\/b>: click on “PACKAGES<\/b>” in the top navigation bar for a list of all of the ebook and spreadsheet packages on this site!<\/span><\/p>\n<\/div>\n<\/div>\n \n<\/div>\n <\/p>\n Never assume that your church or organization is “exempt” from federal regulations and automatically exempt at the state level. <\/p>\n Take the time to research your state’s employment taxes to understand what your organization is exempt from and what it may still be liable for.<\/p>\n See the bottom of this article on “Tax Exempt Status for Churches<\/a>” for additional state exemption regulations.<\/p>\n<\/div>\n <\/p>\n The Church Accounting: How To Guide<\/a><\/b> devotes a whole section of the book to payroll for churches. It covers payroll terminology and forms and then takes you through the steps necessary to set up a payroll, calculate and file the necessary taxes and forms, and even details how to handle the minister’s payroll. It also includes sections on filling out IRS forms: 1099-Misc, 1099-NEC, and 1096.<\/p>\n If you have QuickBooks or are considering using it in the future, go ahead and purchase the QuickBooks for Churches<\/b> and the How To Guide<\/b> combo for a complete package on setting up and administering a payroll using QuickBooks.<\/p>\n QuickBooks for Churches & Church Accounting Combo Bundle<\/a> <\/b><\/p>\n<\/div>\n<\/div>\n <\/div>\n I have observed several well-meaning churches covering their employees’ individual health insurance premiums. This can be a nontaxable reimbursement if established correctly. Payroll errors often occur when these reimbursements are not aligned with ACA (Affordable Care Act) guidelines. If not set up properly, these healthcare reimbursements can violate ACA requirements and lead to penalties.<\/p>\n Additionally, there are strict guidelines surrounding these types of healthcare plans, so it’s essential to be aware of them and ensure compliance. <\/p>\n Another common payroll mistake is categorizing an employee’s health insurance premium as “pre-tax.” <\/p>\n “Generally speaking, an employee contribution toward health coverage is deducted from wages on an after-tax basis unless the employer establishes a special arrangement under Section 125 of the federal tax code.”<\/p>\n …excerpt from Health Coverage Guide’s article: Tax Implications<\/p>\n As I am not an expert in HRAs or health insurance, I strongly recommend consulting a benefits or HR professional. It is crucial to ensure your church’s payroll is accurately set up concerning the tax implications of health insurance benefits.<\/p>\n <\/p>\n NOTE:\u00a0<\/b><\/span>Healthcare Costs Sharing Plans<\/b> such as Samaritan Ministries are NOT<\/b> considered insurance and the monthly cost to participate in those plans do NOT<\/b> qualify as medical expenses and cannot be reimbursed through a QSEHRA.\u00a0If you are reimbursing your employee for the cost of participating in one of those plans OR paying the fee directly, you must include those payments in your employee\u2019s taxable income.\u00a0<\/p>\n<\/div>\n<\/div>\n<\/div>\n <\/p>\n Donation Guidelines Package<\/b><\/span><\/p>\n A set of 4 ebook packages that covers many of the following topics…<\/b><\/p>\n <\/div>\n <\/p>\n <\/p>\n Before issuing the first paycheck to your employee, ensure you have a W-4 and an I-9 form on file. <\/p>\n For further details on the documents required for payroll, please refer to this Step-by-Step Payroll Guide<\/a>.<\/p>\n Tip:<\/b><\/span> do not rely on your payroll system or company to keep all your payroll records. At the very least, keep a copy of each payroll\u2019s register securely on file. <\/p>\n I had a consulting client call me in tears because her payroll system glitched (a well known payroll processor!) and lost an entire quarter of their payroll that she had to rebuild with no payroll records. It was time consuming and emphasized the importance of “back ups”.<\/p>\n<\/div>\n<\/div>\n<\/div>\n The following compensation types must be analyzed to determine if they should be reported in Box 1 of an employee’s W-2:<\/p>\n **Tip:<\/b>** If you pay for an employee’s cell phone and they do not have a personal phone, some of the monthly charge may be considered taxable income for the portion used for personal purposes.<\/p>\n **Unsubstantiated Business Expenses<\/a><\/b>:** If you have employees who are slow to submit their receipts, remind them that missing receipts for items purchased for the church and paid for with church funds may lead to those amounts being included in their taxable income according to IRS regulations.<\/p>\n <\/p>\n The Policies and Procedures Package<\/a> includes an ebook on Receipts and Reimbursements that explores the management of receipts and supporting documents. <\/span><\/p>\n Additionally, it provides insights on establishing and managing an efficient accountable reimbursement policy.<\/span><\/p>\n Includes a sample of a resolution you can use to present to the board to set up and approve an accountable reimbursement plan.<\/span><\/p>\n .<\/p>\n<\/div>\n<\/div>\n <\/div>\n <\/p>\n This ebook is included in the Policies and Procedures Package<\/a>. However, you can purchase it by itself for only $7.95<\/b><\/span> by clicking the ADD TO CART button below!<\/span><\/p>\n <\/div>\n <\/p>\n The Receipts and Reimbursements ebook is also part of a larger “<\/span>Policies and Procedures<\/span><\/a>” Package” that is packed full of valuable information and for a limited time you can purchase all 5 ebooks and 8 policy templates for only $32.80<\/b><\/span><\/span><\/p>\n<\/div>\n<\/div>\n <\/div>\n <\/p>\n <\/div>\n \n<\/div>\n <\/p>\n Those of you who have followed my newsletter and articles for many years are aware that I emphasize this topic frequently, as it ranks among the most significant payroll mistakes I notice within churches.<\/p>\n Ministers hold a unique status with the IRS. For income tax purposes, they are classified as employees of their church, but in the context of Social Security taxes, they are regarded as self-employed. IMPORTANT: They cannot opt to be compensated as a “regular” employee; this is not a choice but a legal requirement.<\/p>\n Ministers receive payment through the Self-Employment Contributions Act (SECA) System rather than the Federal Insurance Contributions Act (FICA) system. This means that FICA taxes cannot be withheld or matched for ministers!<\/p>\n For further details, please refer to this article about a minister’s status with the IRS<\/a>.<\/p>\n If you are currently compensating your minister via the FICA system, you risk jeopardizing their housing allowance and, more seriously, exposing them to potential charges of tax evasion.<\/p>\n<\/div>\n <\/p>\n The Compensating Ministers Package<\/a> includes three ebooks on how to compensate and pay your ministers; what minister benefits could potentially hurt the minister and the church; how to set up a housing allowance and report it; and how to handle ministers’ gifts\/love offerings. Also includes an example of a W-2 for a minister.<\/span><\/p>\n Additionally there is a sample of a resolution<\/b> you can use to\u00a0 to set up and approve a housing allowance for your ministers; an estimate worksheet<\/b> for the minister to use to help the church determine the amount of the housing allowance; and an example of a notification letter<\/b> the church can use to inform the minister on the amount of housing allowance payments paid during a calendar year.<\/span><\/p>\n All 3 ebooks are only $18.55<\/b> PLUS you can use the discount code: FCA for an additional 10% off!<\/span><\/p>\n<\/div>\n<\/div>\n <\/div>\n <\/p>\n <\/div>\n \n<\/div>\n <\/p>\nPayroll Mistakes #6: State Exemptions<\/h2>\n
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\n<\/p>\nPayroll Mistakes #5: Paying Individual Health Insurance Premiums\u00a0<\/h2>\n
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<\/a><\/div>\n<\/div>\n<\/div>\nPayroll Mistakes #4: No Payroll Forms on File<\/h2>\n
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<\/div>\nPayroll Mistakes #3: Not Including Taxable Income<\/h2>\n
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<\/a><\/div>\n<\/div>\n<\/a>\n<\/div>\n<\/div>\nPayroll Mistakes #2: Paying Ministers Through the FICA System<\/h2>\n
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<\/a><\/div>\n<\/div>\n<\/a>\n<\/div>\n<\/div>\nPayroll Mistakes #1 Classifying Workers Incorrectly<\/h2>\n
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