Can a Church Glorify God via the Property Tax Process? Absolutely.

What churches should know, especially when an unexpected property tax bill arrives.

Churches meeting certain criteria are considered automatically exempt for federal tax purposes. That’s why many are caught off-guard when an unexpected bill arrives from the local assessor. Attorney Midgett Parker, a long-time senior editorial advisor for Church Law & Tax, explains what happens when property tax gets assessed, why it might happen, and how churches can work to avoid such problems by building good relationships and maintaining strong communications in the community.

Q: Churches meeting certain criteria are considered automatically tax-exempt for federal tax purposes. Does this mean any property they own is also automatically exempt from taxes?

No. Real property owned by a religious entity is not automatically tax-exempt. Churches that own property or rent their space are still paying property taxes until they apply for, and receive from the local jurisdiction, their tax exemption status for the real property.

In other words, churches must take steps to find out what the procedures are in their local jurisdiction to apply for the tax exemption status for the real property. In today’s world, it’s easy: just conduct an online search by typing in “real property tax exemption for churches in …” followed by the county and state name.

Once you’ve found the address and phone number of the local tax assessment office, pick up the phone, ask for help applying for the exemption and perhaps even visit that office.

Build relationships. Look at it as a positive experience—an opportunity to spread the word that your church is in the community; that it has acquired a property or is leasing a property.

The next thing to do is talk to other church leaders. Ask them if their property is exempt and what processes they went through. Again, it’s about building relationships not just for advancement of the kingdom, but to obtain relief for your congregations whose tithes and offerings are supporting the church. It’s worth the time.

Q: What should a church be prepared to have ready when going through a tax exemption application at the local level?

The primary purpose behind the exemption is that the property is used exclusively for religious worship purposes (which is basically the standard across the United States). You want to present evidence (through written documentation and oral testimony) to show how the property is used EXCLUSIVELY for religious worship purposes.

If you’re not ready to build on a vacant property, obtain a permit for a tent, have a revival. Print out your program or have available a program showing the property is being used for religious worship purposes.

Sure, your church can have picnics, create exercise and meditation gardens, have and serve refreshments, but again, the primary use is religious worship.

Also, make sure you have a site plan that shows the actual property boundaries. You might even want to take a surveyor to the site and put stakes in the ground outlining the shape and size of the property.

Q: What about churches that lease space?

Storefront churches, and churches using similar spaces, are a growing trend because it’s easier to move into an existing building than build a new one from the ground up.

When renting space, the reality is that a portion of your rent is going to pay local real property taxes. And typically, in lease documents, they outline what the rent rate is and maybe mention your responsibility for your portion of the real property taxes. If the lease agreement includes such information, ask the assessor for any exemptions from real property taxes for your religious use on a portion of the real property in the lease.

Tip: Sometimes, a county government will offer an exemption from real property taxes for space used by a religious entity exclusively for religious worship purposes. Prince George County, Maryland, for example, offers an exemption that might make a good template to take to your local assessor or governing body to ask for a similar arrangement.

Q: Why is a church property tax exemption not permanent?

Because land uses change—and there are eyes watching you all the time. So be careful.

A church may sell its property and the government wants to receive its share of taxes, so it will add the property back to the tax rolls.

Or maybe a church owns the property and changes the use. For example, the church adds affordable housing or housing for the elderly, making it a residential use.

Another example: a church lost its exemption from real property tax when it decided to begin renting parking spaces in direct competition with the local metropolitan parking lot – typically near a mass transit rail line. As a result, it lost its property tax exemption for the portion of the property being used as a commercial parking lot.

Q: What if a church sells its property to another church?

Typically, the exemption will remain in place. But, again, relationships and communication are key. Talk to the assessor’s office, let them know what is going on, and remind them that the property will continue to be used exclusively for religious worship purposes.

Q: What types of situations might trigger a property tax assessment for a church, even if it has a valid exemption on record with its local assessor?

When activities cause others to question the activities on the property, it might bring a challenge.

Food banks are a good example, or perhaps a clothing thrift shop. An outsider might see such activity as a non-religious use without being aware the food bank or thrift shop is part of your mission. So, let the assessor know the missional aspect of the activity because, chances are, you will be challenged.

Q: What about building on vacant property or vacating an existing building to allow renovations or an addition? What should church leaders expect from the local taxing authority in these situations?

The period during construction for the church’s use may be targeted to be taxed because you’re not using the space exclusively for religious worship purposes. The key, though, is to continue worshiping there, even during construction.

Another key: building a morals and religious worship clause into all construction contracts spelling out that the property is God’s property and is to be treated as holy ground. Turn the project into a worship experience.


Dig Deeper: A New Jersey church was forced to pay taxes for a converted building. Click here to find out why.


Think creatively. Find a biblical basis—the nexus between what your activity is (construction) and the worshipful aspect of that activity. And be prepared to take your argument to the local tax assessor and your elected officials. They could change the local tax code to allow that a church in the midst of a construction project while continuing to hold religious worship services on the property does not violate the exclusive use requirement.

I’m an optimist about these things!

Q: If a church receives an unexpected property tax bill, what are the best steps that leaders can take to appeal it with the local assessor?

First, do not panic. Pray. Then, read the tax notice in detail, front-to-back, top to bottom. There ought to be in that tax bill a statement of how the recipient can appeal the assessment, along with an address and phone number. Be sure to call the number provided and ask about the appeal process.

Again, be communicative in a positive way. Typically, there is a very limited window of time to initiate an appeal of an adverse decision—often 30 days from the date of the letter. Missing the window means you’ll likely have to wait until the next year to appeal.

One of the best steps a church leader can take is to accept where you are now. If an appeal is possible, do it. If your church got taxed because its exemption lapsed for one reason or another, rededicate your use of the real property toward EXCLUSIVE religious worship purposes and then apply for the exemption. Then, renew the exemption every year going forward. Don’t look back. Look forward and continue to use the property EXCLUSIVELY for religious worship purposes.

(Editor’s Note: This interview was edited for length and clarity.)

Remote Work Expense Deductions for Pastors and Church Staff

Explore how pastors and church staff can benefit from tax-free reimbursements and deductions for remote work expenses.

Last Reviewed: January 17, 2025

Question: More churches have allowed pastors and employees to work from home one or more days a week. For income tax purposes, can those individuals deduct the business expenses they incur while working from home?


Are Remote Work Expenses Deductible?

In general, employees can no longer deduct unreimbursed business expenses from their personal income tax returns. This change stems from the Tax Cuts and Jobs Act of 2017, which eliminated miscellaneous itemized deductions, including unreimbursed employee expenses.

However, this does not mean that churches cannot assist pastors and staff with their home office expenses. Here are two key considerations:

Ministers and Dual Tax Status

Ministers are uniquely treated under the tax code due to their dual tax status. They are considered employees for income tax purposes but are treated as self-employed for Social Security and Medicare purposes under the Self-Employed Contributions Act (SECA). Because of this distinction, ministers may still be able to deduct unreimbursed business expenses when calculating net income subject to self-employment tax. Consulting with qualified tax counsel is essential to explore this possibility further.

Reimbursement for Work-from-Home Expenses

Churches can reimburse pastors and staff for valid business expenses incurred while working from home under an accountable reimbursement arrangement. Eligible expenses include costs for equipment and supplies used exclusively for employment purposes. Examples of reimbursable expenses include:

  • Computers or laptops (especially for cybersecurity and productivity needs)
  • Monthly internet service (to ensure adequate speeds for video calls and other activities)
  • Office supplies, such as paper, pens, or folders
  • Printers, scanners, or other office equipment
  • Office furniture, if necessary and approved by the employer

Advantages of Reimbursements

There are distinct advantages for churches to reimburse work-from-home expenses:

  • Tax-Free Reimbursements: Expenses reimbursed under an accountable reimbursement arrangement are not taxable income to the employee.
  • Improved Productivity and Security: Providing specific equipment or internet services ensures employees have the tools needed to perform their roles effectively and securely.

For a detailed look at accountable reimbursement arrangements, including key points and examples, see Chapter 7 of Richard Hammar’s “Church & Clergy Tax Guide”.


Important Considerations

For Pastors and Employees

If an employer pays for furniture or equipment, the employer retains ownership of these items. Employees are responsible for maintaining these items and returning them if their employment ends.

For Churches

Reimbursements can impact budgets, but they provide significant financial relief to employees and are generally not taxable. Churches should balance the financial benefit to staff with their overall budgetary constraints.

FAQs About Remote Work Expense Deductions

Can pastors deduct home office expenses on their taxes? Pastors may deduct unreimbursed business expenses for self-employment tax purposes but should consult with a tax professional for guidance. What is an accountable reimbursement arrangement? It is a plan that allows employers to reimburse employees for valid business expenses tax-free, provided detailed documentation is maintained. Which expenses qualify for reimbursement? Qualifying expenses include computers, internet service, office supplies, and other items used exclusively for work purposes. Do employees own reimbursed equipment? No, items purchased or reimbursed by the employer typically remain the property of the employer.

Conclusion

While pastors and church staff may not be able to deduct unreimbursed business expenses directly, churches can help by reimbursing valid work-from-home costs. This not only supports staff productivity but also provides financial relief through tax-free reimbursements. Churches should establish clear accountable reimbursement arrangements to ensure compliance and maximize the benefits for their teams.

Michael (Mike) E. Batts is a CPA and the managing partner of Batts Morrison Wales & Lee, P.A., an accounting firm dedicated exclusively to serving nonprofit organizations across the United States.

Keeping Your Church’s Deposits Safe in a Jittery Bank Environment

Silicon Valley Bank’s failure shows we never really know whether a bank is truly safe and sound.

Editor’s Note: This article, which is provided for information only and is not an endorsement, has been edited and republished with permission from Batts Morrison Wales & Lee.

Many church and nonprofit leaders are wondering if their organizations’ bank deposits are safe in the current banking environment. And for good reason.

Join Church Law & Tax today as an Advantage Member and begin receiving unlimited access, product discounts, exclusive webinars and events, and much, much more!

Immediately before Silicon Valley Bank (SVB) was taken over by the FDIC on March 10, 2023, one major ratings agency had an “A” rating outstanding for the bank, and another had a “B” rating outstanding.

SVB’s failure was the second largest in US history, according to The Wall Street Journal, which offered a truly remarkable observation about it: “The bank was in sound financial condition on Wednesday, the regulator said. A day later, it was insolvent.”

When a bank with “A” and “B” ratings is considered by regulators to be sound one day, and taken over by the FDIC two days later, it’s only logical to wonder how any reasonable, prudent person can know whether any bank is in healthy financial condition.

Fortunately for SVB’s depositors, federal banking officials have indicated that all SVB depositors will be made whole, even beyond the $250,000-per-depositor FDIC coverage cap because of SVB’s systemic importance.

But a logical corollary is that one cannot assume that the same will be true for the next bank that fails. Another bank, Signature Bank, also recently failed.

Assessing where your organization banks

Given the practical limitations on the ability to know whether any bank is truly safe and sound, what can–and should—church and nonprofit leaders do to ensure that their organizations’ bank cash deposits are safe?

Some people are suggesting that perhaps the only safe banks are the very largest banks in the country … those that many believe regulators deem are “too big to fail.” It is important to note that the assumption that regulators would make all depositors of a very large bank whole in any failure scenario is just that…an assumption. There is no federal guarantee of regular deposits in any bank beyond the FDIC’s $250,000 per depositor insurance coverage.

Additionally, If all depositors decided to bank only with the largest banks, smaller local and regional banks would be wiped out, and local banking relationships could be more difficult to maintain. And depending on the size of your organization’s deposit balances, it may not be practical to try to spread deposits among multiple banks keeping balances below the FDIC coverage cap of $250,000 per depositor.

So, let’s turn to the topic of making deposits in the banking system.

Clearly, there are ways to protect cash outside of the banking system in an investment portfolio, such as investing (with the help of a properly credentialed investment advisor) in short-term US Treasury securities or in appropriate investment funds that hold such securities. But what about cash that your organization simply wants to keep in the bank?

It is probably true that the larger the bank, the more likely it is that federal regulators would deem it too big to fail.

So, if your organization wants to bank with a big bank, that could be an appropriate strategy. Bankrate offers a list of the 15 largest banks in the USIt is interesting to note, however, that #14 on the list, First Republic Bank, recently had a severe challenge. Bankrate’s website includes an update on First Republic Bank dated March 17, 2023, which states:

It’s also important to note that First Republic recently faced turmoil that threatened its solvency following the collapse of Silicon Valley Bank and Signature Bank. However, 11 of the largest US banks came together to save the bank, depositing $30 billion into First Republic to keep it afloat.

Just know the fact that a bank is large–even very large–is not, in and of itself, assurance of the bank’s financial health.

A word of caution: Any organizations or persons considering any strategy to manage the risk of their bank deposits or other assets should perform their own due diligence before taking action.

Tapping into IntraFi

Is there a way to ensure that an organization’s bank cash deposits are safe, even with a local or regional bank?

Many such banks would answer that question with a resounding “Yes!,” and a number of them would point to their participation in programs offered by IntraFi Network, LLC (IntraFi). IntraFi’s website describes its two main programs, ICSand CDARS, as follows:

Using IntraFi Cash Service, or ICS, and CDARS you can access millions in FDIC insurance for cash deposits from IntraFi® network banks and enjoy the simplicity of banking with just one trusted, local institution. Conveniently and easily secure funds placed into demand deposit accounts, money market deposit accounts, or CDs.

Banks that participate in the IntraFi network allow customers to maintain a relationship with one bank and have FDIC insurance coverage for deposits well beyond the standard FDIC coverage cap of $250,000 per depositor per bank. The network allows for the larger deposits to be spread among multiple banks in the network in amounts below the $250,000 FDIC cap while maintaining one point of contact with one participating bank.

IntraFi offers programs for demand deposit (checking) accounts, money market accounts, and CDs. Participation in the IntraFi program with a participating bank can carry a cost or fee . The cost can apply as a reduction in the interest rate you earn on your deposit balances. For example, in another alert about earning interest on your organization’s excess checking account funds, I quoted Texas Security Bank president, Craig Scheef, who stated that his bank reduces the interest rate it pays on money market accounts (currently, approximately 4% annualized) by 0.15% for deposits that participate in the IntraFi program.

The IntraFi website, which says that thousands of financial institutions across the country participate in its programs, has a web page that allows you to find banks that participate in the program as well as an FAQ page. In the current environment, interest in the IntraFi program has increased significantly, according to Scheef.

Michael (Mike) E. Batts is a CPA and the managing partner of Batts Morrison Wales & Lee, P.A., an accounting firm dedicated exclusively to serving nonprofit organizations across the United States.
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Church-Run Schools Face Annual Deadline for Federal Form

Leaders should not overlook the Form 5578, an oft-forgotten IRS requirement.

Churches and other religious organizations that operate, supervise, or control a private school must file a certificate of racial nondiscrimination (Form 5578) each year with the Internal Revenue Service (IRS).

The certificate is due by the 15th day of the fifth month following the end of the organization’s fiscal year. This is May 15 of the following year for organizations that operate on a calendar-year basis. For example, the Form 5578 for 2022 is due May 15, 2023.

What is a “private school?”

private school is defined as an educational organization that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly conducted. The term includes primary, secondary, preparatory, or high schools, as well as colleges and universities, whether operated as a separate legal entity or an activity of a church.

Key point. The term school also includes preschools, and this is what makes the reporting requirement relevant for many churches. As many as 25 percent of all churches operate a preschool program.

Key point. Independent religious schools that are not affiliated with a church or denomination and that file Form 990 (see above) do not file Form 5578. Instead, they make their annual certification of racial nondiscrimination directly on Form 990 (Schedule E).

Filing the certificate of racial nondiscrimination is one of the most ignored federal reporting requirements.

Churches that operate a private school (including a preschool), as well as independent schools, may obtain Form 5578 through the IRS website.

Completing Form 5578 is easy

Form 5578 is not complicated. A church official simply identifies the church and the school and certifies that the school has “satisfied the applicable requirements of sections 4.01 through 4.05 of Revenue Procedure 75-50.”

The applicable requirements are:

(1) The school has a statement in its charter, bylaws, or other governing instrument, or in a resolution of its governing body, that it has a racially nondiscriminatory policy toward students.

(2) The school has a statement of its racially nondiscriminatory policy toward students in all its brochures and catalogs dealing with student admissions, programs, and scholarships.

(3) The school makes its racially nondiscriminatory policy known to all segments of the general community served by the school in one of the following ways:

• publishing a notice of its racially nondiscriminatory policy at least annually in a newspaper of general circulation,

• utilizing broadcast media, or

• displaying a notice of its racially nondiscriminatory policy on its primary, publicly accessible Internet homepage at all times during its taxable year (excluding temporary outages due to website maintenance or technical problems) in a manner reasonably expected to be noticed by visitors to the homepage. IRS Revenue Procedure 2019-22.

The IRS has clarified that “a publicly accessible homepage is one that does not require a visitor to input information, such as an email address or a username and password, to access the homepage.

Factors in determining whether a notice is reasonably expected to be noticed by visitors to the homepage include the size, color, and graphic treatment of the notice in relation to other parts of the homepage, whether the notice is unavoidable, whether other parts of the homepage distract attention from the notice, and whether the notice is visible without a visitor having to do anything other than simple scrolling on the homepage.

A link on the homepage to another page where the notice appears, or a notice that appears in a carousel or only by selecting a dropdown or by hover (mouseover) is not acceptable. If a school does not have its own website, but has webpages contained in a website, the school must display a notice of its racially nondiscriminatory policy on its primary landing page within the website.”

The IRS has drafted the following statement that satisfies the publicity requirement:

Notice Of Nondiscriminatory Policy As To Students

The (name) school admits students of any race, color, national and ethnic origin to all the rights, privileges, programs, and activities generally accorded or made available to students at the school. It does not discriminate on the basis of race, color, national and ethnic origin in administration of its educational policies, admissions policies, scholarship and loan programs, and athletic and other school-administered programs.

The publicity requirement is waived if one or more of the following exceptions apply:

• During the preceding three years, the enrollment consists of students at least 75 percent of whom are members of the sponsoring church or religious denomination, and the school publicizes its nondiscriminatory policy in religious periodicals distributed in the community.

• The school draws its students from local communities and follows a racially nondiscriminatory policy toward students and demonstrates that it follows a racially nondiscriminatory policy by showing that it currently enrolls students of racial minority groups in meaningful numbers.

(4) The school can demonstrate that all scholarships or other comparable benefits are offered on a racially nondiscriminatory basis.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Making Sense of Retirement for Pastors

Learn how to address the most common issues in retirement planning for pastors and church staff.

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Retirement compensation and benefits are frequently a concern of church leaders and pastors. It is common for churches to provide an option through denominational affiliations. While others may offer their own plan, they aren’t confident it is the best. Others offer nothing at all.

This webinar recording is presented by Matthew Branaugh, Church Law & Tax attorney and content editor, and attorney Danny Miller, covering retirement plan options, managing costs, and rules and regulations for pastors and church staff.

Panelists:

Danny Miller | Attorney

Matthew Branaugh | Attorney & Content Editor for Church Law And Tax

Reading & Resources: 

Download the resources and templates mentioned in this webinar below.

Key Tax Dates March 2023

Monthly and semiweekly requirements for depositing payroll taxes.

Monthly Requirements

If your church reported withheld taxes of $50,000 or less during the most recent lookback period (for 2023 the lookback period is July 1, 2021, through June 30, 2022), then withheld payroll taxes are deposited monthly.

Monthly deposits are due by the 15th of the following month.

Important Note: If withheld taxes are less than $2,500 at the end of any calendar quarter (March 31, June 30, September 30, or December 31), the church need not deposit the taxes. Instead, the church can pay the total withheld taxes directly to the IRS with its quarterly Form 941. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes.

Semiweekly Requirements

If your church reported withheld taxes of more than $50,000 during the most recent lookback period (for 2023 the lookback period is July 1, 2021, through June 30, 2022), then the withheld payroll taxes are deposited semiweekly with a bank.

This means that for paydays falling on Wednesday, Thursday, or Friday, the payroll taxes must be deposited on or by the following Wednesday. For all other paydays, the payroll taxes must be deposited on the Friday following the payday.

Note further that large employers having withheld taxes of $100,000 or more at the end of any day must deposit the taxes by the next banking day. The deposit days are based on the timing of the employer’s payroll. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes (7.65 percent of wages), and the employer’s share of Social Security and Medicare taxes (an additional 7.65 percent of employee wages).

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Note: If a date listed for filing a return or making a tax payment falls on a Saturday, Sunday, or legal holiday (either national or statewide in a state where the return is required to be filed), the return or tax payment is due on the following business day.

Note: You must use electronic funds transfer to make all federal employment tax deposits. This is generally done using the Electronic Federal Tax Payment System, a free service provided by the U.S. Department of Treasury. If you don’t wish to use EFTPS, you can arrange for your tax professional, financial institution, or payroll service to make deposits on your behalf. Failure to make a timely deposit may subject you to a 10-percent penalty.

Key Tax Dates February 2023

Among other important items, quarterly federal tax returns are due along with Affordable Care Act forms 1095-C and 1094-C for employers with 50 or more FTEs.

Monthly requirements

If your church or organization reported withheld taxes of $50,000 or less during the most recent lookback period (for 2023, the lookback period is July 1, 2021, through June 30, 2022), then withheld payroll taxes are deposited monthly. Monthly deposits are due by the 15th day of the following month.

The 2023 Church & Clergy Tax Guide is available—preorder your print copy today or download the .pdf version now.

Note, however, that if withheld taxes are less than $2,500 at the end of any calendar quarter (March 31, June 30, September 30, or December 31), the church need not deposit the taxes.

Instead, it can pay the total withheld taxes directly to the IRS with its quarterly Form 941.

Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes.

Semiweekly requirements

If your church or organization reported withheld taxes of more than $50,000 during the most recent lookback period (for 2023, the lookback period is July 1, 2021, through June 30, 2022), then the withheld payroll taxes are deposited semiweekly. This means that for paydays falling on Wednesday, Thursday, or Friday, the payroll taxes must be deposited on or by the following Wednesday.

For all other paydays, the payroll taxes must be deposited on the Friday following the payday. Note further that large employers having withheld taxes of $100,000 or more at the end of any day must deposit the taxes by the next banking day.

The deposit days are based on the timing of the employer’s payroll. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes (7.65 percent of wages), and the employer’s share of Social Security and Medicare taxes (an additional 7.65 percent of employee wages).

February 10, 2023: Employer’s quarterly federal tax return due

Churches having nonminister employees (or one or more ministers who report their federal income taxes as employees and who have elected voluntary withholding) may file their employer’s quarterly federal tax return (Form 941) by this date instead of January 31 if all taxes for the fourth calendar quarter (of 2022) have been deposited in full and on time.

February 28, 2023: Filing 1095-C and 1094-C for applicable large employers and ACA compliance

Applicable large employers, generally employers with 50 or more full-time employees (including full-time equivalent employees) in the previous year, must file a Form 1095-C for each employee who was a full-time employee of the employer for any month of the previous calendar year by this date. Generally, the employer is required to furnish a copy of Form 1095-C (or a substitute form) to the employee.

The employer also files a Form 1094-C transmittal form with the IRS (including copies of each Form 1095-C). The purpose of this form is to ensure that applicable large employers are complying with the shared responsibility provisions of the ACA. Generally, you must file Forms 1094-C and 1095-C by February 28 if filing on paper (or March 31 if filing electronically) of the year following the calendar year to which the return relates. For calendar year 2022, Forms 1094-C and 1095-C are required to be filed by February 28, 2023, or March 31, 2023, if

filing electronically.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Key Tax Dates January 2023

Noting the key tax forms due this month, along with other recurring deadlines.

Monthly requirements

If your church or organization reported withheld taxes of $50,000 or less during the most recent lookback period (for 2023, the lookback period is July 1, 2021, through June 30, 2022), then withheld payroll taxes are deposited monthly. Monthly deposits are due by the 15th day of the following month.

Tip: The 2023 Church & Clergy Tax Guide is out—preorder your copy today (it will ship in January).

Note, however, if withheld taxes are less than $2,500 at the end of any calendar quarter (March 31, June 30, September 30, or December 31), the church need not deposit the taxes.


Instead, it can pay the total withheld taxes directly to the IRS with its quarterly Form 941. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes.

Semiweekly requirements

If your church or organization reported withheld taxes of more than $50,000 during the most recent lookback period (for 2023, the lookback period is July 1, 2021, through June 30, 2022), then the withheld payroll taxes are deposited semiweekly.

This means that for paydays falling on Wednesday, Thursday, or Friday, the payroll taxes must be deposited on or by the following Wednesday. For all other paydays, the payroll taxes must be deposited on the Friday following the payday.

Note further that large employers having withheld taxes of $100,000 or more at the end of any day must deposit the taxes by the next banking day. The deposit days are based on the timing of the employer’s payroll. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes (7.65 percent of wages), and the employer’s share of Social Security and Medicare taxes (an additional 7.65 percent of employee wages).

January 1, 2023: Payroll taxes

Social Security and Medicare taxes

Employees and employers each pay Social Security and Medicare taxes equal to 7.65 percent of an employee’s wages. The tax rate does not change in 2023.

While federal law exempts ministers from mandatory federal income tax withholding, many states may not have the same exemption available for ministerial employees. Check your specific state for details. Meanwhile, for a more comprehensive guide to church compensation and taxation, check out CPA Elaine Sommerville’s Church Compensation, Second Edition.

The 7.65 percent tax rate is comprised of two components: 1) a Medicare hospital insurance tax of 1.45 percent, and 2) an “old age, survivor and disability” (Social Security) tax of 6.2 percent. There is no maximum amount of wages subject to the Medicare tax. The tax is imposed on all wages regardless of amount.

For 2023, the maximum wages subject to Social Security taxes (the 6.2 percent amount) is $160,200. Stated differently, employees who receive wages in excess of $160,200 in 2023 pay the full 7.65 percent tax rate for wages up to $160,200, and the Medicare tax rate of 1.45 percent on all earnings above $160,200. Employers pay an identical amount. The Medicare tax rate for certain high-income taxpayers increases by an additional 0.9 percent.

Self-employment taxes

The self-employment tax rate (15.3 percent) does not change in 2023. The 15.3 percent tax rate consists of two components: (1) a Medicare hospital insurance tax of 2.9 percent, and (2) an “old age, survivor and disability” (Social Security) tax of 12.4 percent. There is no maximum amount of self-employment earnings subject to the Medicare tax. The tax is imposed on all net earnings regardless of the amount.

For 2023, the maximum earnings subject to the Social Security portion of self-employment taxes (the 12.4 percent amount) is $160,200. Stated differently, persons who receive compensation in excess of $160,200 in 2023 pay the combined 15.3 percent tax rate for net self-employment earnings up to $160,200, and only the Medicare tax rate of 2.9 percent on earnings above $160,200. The Medicare tax rate for certain high-income taxpayers increases by an additional 0.9 percent.

These rules directly impact ministers, who are considered self-employed for Social Security with respect to their ministerial services. Ministers should take these rules into account in computing their quarterly estimated tax payments.

Federal income taxes

Beginning on this date, churches having non-minister employees (or a minister who has elected voluntary withholding) should begin withholding federal income taxes from employee wages. To know how much federal income tax to withhold from employees’ wages, employers should have a Form W-4 on file for each employee. Employees should file an updated Form W-4 for 2023, especially if they owed taxes or received a large refund when filing their previous tax return. Employees should use the IRS Tax Withholding Estimator to determine accurate withholding.

January 17, 2023: Fourth quarter estimated taxes due

Ministers (who have not elected voluntary withholding) and self-employed workers must file their fourth quarterly estimated federal tax payment for 2022 by this date (a similar rule applies in many states to payments of estimated state taxes).

Employees of churches that filed a timely Form 8274 (waiving the church’s obligation to withhold and pay FICA taxes) are treated as self-employed for Social Security purposes, and accordingly are subject to the estimated tax deadlines with respect to their self-employment (Social Security) taxes unless they have entered into a voluntary withholding arrangement with their employing church or organization.

January 31, 2023: Tax forms due

Churches must furnish Copies B, C, and 2 of Form W-2 (“wage and tax statement”) by this date to each person who was an employee during 2022. This requirement applies to clergy who report their federal income taxes as employees rather than as self-employed, even though they are not subject to mandatory income tax (or FICA) withholding. Non-minister church employees must also receive a W-2.

Churches must send Copy A of Forms W-2, along with Form W-3, by this date to the Social Security Administration. If you file electronically, the due date is also January 31, 2023.

Churches must issue Copy B of Form 1099-NEC (“nonemployee compensation”) by this date to any self-employed person to whom the church paid nonemployee compensation of $600 or more in 2022. This form (rather than a W-2) should be provided to clergy who report their federal income taxes as self-employed, since the Tax Court and the IRS have both ruled that a worker who receives a W-2 rather than a 1099-NEC is presumed to be an employee rather than self-employed. Other persons to whom churches may be required to issue a Form 1099-NEC include evangelists, guest speakers, contractors, and part-time custodians.

Churches must send Copy A of Forms 1099-NEC, along with Form 1096, to the IRS by this date.

Churches must distribute a 2022 1099-INT form to any person paid $600 or more in interest during 2022 by this date (a $10 rule applies in some cases).

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Why the Respect for Marriage Act Preserves Religious Liberty

I’m among four scholars who submitted an analysis to US Senators arguing that the Respect

I’m among four scholars who submitted an analysis to US Senators arguing that the Respect for Marriage Act (RMA) addressed religious liberty concerns for organizations that hold traditional views of marriage—and indeed offers potentially valuable protections for the future.

Let me summarize why.

The US Supreme Court’s 2015 decision in Obergefell v. Hodges already requires states to recognize same-sex marriages. But the Act is an insurance policy against the Court overturning Obergefell. It requires anyone acting “under color of state law” to recognize a marriage “valid in the state where [it] was entered.”

This does not make private organizations that support only man-woman marriage liable for who they employ or the services they provide. The Supreme Court has repeatedly held that private organizations do not act “under color of state law” even when they’re heavily state-regulated and receive all their income from state funds.

The Court will not overrule those decisions.

Moreover, the Act explicitly protects both churches and religious nonprofits from having to provides services, facilities, or goods “for the solemnization or celebration of a marriage.”

Critics of the RMA still warn that the Act could serve as a bootstrap to justify separate restrictions on conservative religious organizations. By analogy, they reference the Supreme Court’s 1983 decision in Bob Jones University, which allowed the IRS to strip tax exemptions from racially discriminatory private schools—including religious schools—on the basis of a “firm and unyielding” national policy, shown in numerous statutes, against racial discrimination.

But the Act addresses that concern. First, Section 7(a) of the RMA says the Act does not “deny or alter” any tax exemption, funding, license, accreditation, or other “benefit, status, or right of an otherwise eligible entity or person” (including, plainly, a religious organization). Because the Act does not even “alter” such rights (beyond just not “deny[ing]” them), it’s fair to infer that it can’t even be cited as one ground among many for such a step.

Moreover, Section 2(2) states that “[d]iverse beliefs about the role of gender in marriage” (including, plainly, the belief in man-woman marriage) “are held by reasonable and sincere people based on decent and honorable philosophical premises” and “are due proper respect.” This statement distinguishes traditional-marriage beliefs from those opposing interracial marriage, which receive no such affirmation (even as the statute protects interracial marriages). The finding counters the analogy to the Bob Jones University case and racism. It can—and will—be cited as a statement of “national policy” to respect, rather than penalize, organizations adhering to man-woman marriage.

Religious liberty bills that protect conservatives alone have failed in our closely divided times. Although the RMA doesn’t solve all of the religious liberty problems intersecting with gay and lesbian rights, it solves the problems it raises and offers a hopeful, if limited, model for future bipartisan efforts.

Thomas Berg is the James L. Oberstar Professor of Law and Public Policy at the University of St. Thomas School of Law in Minnesota. He teaches and writes on religious liberty, constitutional law, and intellectual property, and supervises students in the school’s religious liberty appellate clinic, which files briefs in cases before the US Supreme Court and appellate courts. Berg is also co-author of a leading casebook, Religion and the Constitution.

Mastercard Rolls Out New Standards for Recurring Billing

Understanding these standards is important for churches and church-run schools with sustainer donor programs.

You may have heard that Mastercard was implementing new required standards for merchants that use subscription or recurring billing, which includes recurring gifts made to nonprofit entities, churches, and church-run schools.

However, after receiving feedback from merchants, Mastercard has now made the new standards best practices—not a requirement—for nonprofit and charity merchants, as long as those entities do not have excessive chargebacks.

Understanding these new standards is crucial for any church or church-run school with a recurring giving program (also known as a sustainer donor program), including which merchants must comply with the standards, what is required, and the potential penalties for noncompliance.

For those who may wonder, these new standards do not stem from a government regulation. They are a contractual matter with Mastercard and only apply to donations that automatically recur. For example, a one-time gift made by using the “donate” button on a church or school’s website would not be considered a subscription payment.

Furthermore, there has been no indication that other payment processors plan to follow Mastercard’s lead and implement similar required standards.

The back story

On June 14, 2022, Mastercard introduced Transaction Processing Rules that include new standards, outlined in Section 5.4.1, for subscription billing.

While the Transaction Processing Rules state that these standards apply to “subscription billing in which the Cardholder has agreed for the Merchant to provide ongoing and/or periodic delivery of physical products or Digital Goods,” Mastercard later clarified that this includes recurring donations made to nonprofit and charitable organizations.

While the new standards went into effect on September 22, 2022, Mastercard extended the effective date to March 21, 2023, for nonprofit organizations.

In October, Mastercard then announced that, effective October 11, 2022, only nonprofits and charity merchants with excessive chargebacks will be required to comply with the new standards.

Noncompliance is costly

Under the modified requirements, all the standards described below that took effect on September 22, 2022, are recommended as a best practice for nonprofit and charity merchants with a recurring payment program.

However, the standards become a requirement if a nonprofit or charity merchant that uses a recurring payment plan is placed into Mastercard’s Acquirer Chargeback Monitoring Program (ACMP) as an Excessive Chargeback Merchant, High Excessive Chargeback Merchant, or Excessive Fraud Merchant for at least four months. (Mastercard offers a “Data Integrity Monitoring Program” module as well as an updated, downloadable rules document.)

Organizations in the ACMP for at least four months or more that do not implement the required standards may be subject to a costly Category A noncompliance assessment each month, in addition to the assessments applicable under the ACMP.

A Category A noncompliance assessment can be up to $25,000 for the first violation and increase with each subsequent violation, up to $100,000 per violation for the fourth and subsequent violations within 12 months. More information about Category A noncompliance assessments is available in Section 2.1.4 of the Mastercard Rules.

The new, recommended standards entail:

  • Disclosing the donor’s selected donation amount and frequency when requesting credit card information as well as on any payment and order summary webpages and asking donors to accept the subscription terms before completing the donation.
  • Sending a subscription confirmation at the time of enrollment in recurring giving. The confirmation should include the terms of the subscription (the recurring donation) and instructions on how to cancel it.
  • Providing an electronic receipt after every successful billing. This should include instructions on how to cancel the subscription (the recurring donation).
  • Providing an online cancellation method or clear instructions on how to cancel that are “easily accessible online,” such as through a “Cancel Subscription” or “Manage Subscription” link on the organization’s home page.
  • For recurring payment plans that bill less frequently than every six months (180 days), sending an electronic reminder outlining the terms of the subscription (the recurring donation) and instructions on how to cancel the subscription or recurring donation 7 to 30 days before the next scheduled billing date. The communication should reference in the subject line that it relates to upcoming charges, and the message should be distinct from marketing communications.

In its statement about the revised standards, Mastercard said that it changed the requirements after engaging with merchants and recognizing that “some of these requirements present unique challenges to merchants that have found other effective ways to manage their subscription and recurring payment model.”

Ted R. Batson Jr. is a CPA and tax attorney, and serves as a partner and Professional Practice Leader – Tax for CapinCrouse LLP, a national CPA and consulting firm. He speaks and teaches frequently for national conferences and organizations on exempt organization and charitable giving matters.

Key Tax Dates December 2022

Housing allowance designations, year-end transactions, 2022 donations, and more.

Monthly requirements

If your church or organization reported withheld taxes of $50,000 or less during the most recent lookback period (for 2022, the lookback period is July 1, 2020, through June 30, 2021), then withheld payroll taxes are deposited monthly. Monthly deposits are due by the 15th day of the following month.

Note, however, that if withheld taxes are less than $2,500 at the end of any calendar quarter (March 31, June 30, September 30, or December 31), the church need not deposit the taxes. Instead, it can pay the total withheld taxes directly to the IRS with its quarterly Form 941. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes.

Semiweekly requirements

If your church or organization reported withheld taxes of more than $50,000 during the most recent lookback period (for 2022, the lookback period is July 1, 2020, through June 30, 2021), then the withheld payroll taxes are deposited semiweekly.

This means that for paydays falling on Wednesday, Thursday, or Friday, the payroll taxes must be deposited on or by the following Wednesday. For all other paydays, the payroll taxes must be deposited on the Friday following the payday.

Note further that large employers having withheld taxes of $100,000 or more at the end of any day must deposit the taxes by the next banking day. The deposit days are based on the timing of the employer’s payroll. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes.

December 15, 2022

  • Complete all year-end transactions to be sure that they are reportable on your income tax return.
  • A church must make quarterly estimated tax payments if it expects an unrelated business income tax (UBIT) liability for the year to be $500 or more. Use IRS Form 990-W to figure your estimated taxes.
  • For 2022, quarterly estimated tax payments of one-fourth of the total tax liability are due by April 18 (April 19 if you live in Maine or Massachusetts), June 15, September 15, and December 15, 2022, for churches on a calendar-year basis. Deposit quarterly tax payments using Electronic Federal Tax Payment System (EFTPS).

December 31, 2022

  • Churches must designate a portion of each minister’s compensation as a housing allowance by this date in order for ministers who own or rent their homes to receive the full benefit of a housing allowance exclusion for calendar year 2023. The designation should be adopted during a regular or special meeting of the church board and should be contained in the written minutes of the meeting.
  • Churches should designate a parsonage allowance for any minister who lives in a parsonage and who is expected to pay some of the expenses of maintaining the parsonage (e.g., utilities, furnishings, repairs, improvements, yard care, insurance).
  • Donors must deliver checks on or by this date to claim a charitable contribution deduction for 2022. Checks that are placed in the church offering during the first worship service in 2023 will not qualify for a charitable contribution deduction in 2022, even if the check is predated to 2022 or was written in 2022. However, checks that are written, mailed, and postmarked in 2022 will be deductible in 2022 even though they are not received by a church until 2023.
  • An employee’s marital status on this date determines his or her filing status for the year.
  • If you have a minister or lay worker who is treated as self-employed for federal income tax reporting purposes, but who you would like to reclassify as an employee, the ideal time to make the change is on January 1, 2023.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Key Tax Dates November 2022

Monthly and semiweekly requirements for depositing payroll taxes.

Monthly requirements

If your church or organization reported withheld taxes of $50,000 or less during the most recent lookback period (for 2022, the lookback period is July 1, 2020, through June 30, 2021), then withheld payroll taxes are deposited monthly. Monthly deposits are due by the 15th day of the following month.

Note, however, that if withheld taxes are less than $2,500 at the end of any calendar quarter (March 31, June 30, September 30, or December 31), the church need not deposit the taxes. Instead, it can pay the total withheld taxes directly to the IRS with its quarterly Form 941.

Withheld taxes include:

  • Federal income taxes withheld from employee wages
  • The employee’s share of Social Security and Medicare taxes
  • The employer’s share of Social Security and Medicare taxes

Semiweekly requirements

If your church or organization reported withheld taxes of more than $50,000 during the most recent lookback period noted above, then the withheld payroll taxes are deposited semiweekly.

This means that for paydays falling on Wednesday, Thursday, or Friday, the payroll taxes must be deposited on or by the following Wednesday. For all other paydays, the payroll taxes must be deposited on the Friday following the payday.

Note: Large employers having withheld taxes of $100,000 or more at the end of any day must deposit the taxes by the next banking day.

The deposit days are based on the timing of the employer’s payroll.

Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes.

Key Date: November 10, 2022

Churches having nonminister employees (or one or more ministers who report their federal income taxes as employees and who have elected voluntary withholding) may file their employer’s quarterly federal tax return (Form 941) by this date instead of October 31 if all taxes for the third calendar quarter have been deposited in full and on time.

Note: If a date listed for filing a return or making a tax payment falls on a Saturday, Sunday, or legal holiday (either national or statewide in a state where the return is required to be filed), the return or tax payment is due on the following business day.

Note: You must use electronic funds transfer to make all federal employment tax deposits. This is generally done using the Electronic Federal Tax Payment System, a free service provided by the U.S. Department of Treasury. If you don’t wish to use EFTPS, you can arrange for your tax professional, financial institution, or payroll service to make deposits on your behalf. Failure to make a timely deposit may subject you to a 10-percent penalty.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Part 5 of 6

Title VII and Church Employment Practices

How the Supreme Court’s interpretation of Title VII’s term “sex” affects church employment.

Title VII of the Civil Rights Act of 1964 protects workers from discrimination based on race, color, religion, sex, or national origin. Since Title VII’s inception, the statute has included an exemption for “religious organizations.”

This exemption became more critical for many churches after the US Supreme Court interpreted Title VII’s term “sex” to include sexual orientation, sexual perception, gender identity, and transgender individuals (Bostock v. Clayton County, 140 S. Ct. 1731 (2020). But, the Supreme Court stated that its decision should not apply to religious organizations.

The Court’s words regarding the religious exemption bring little comfort to many in the religious community. But the Court did not indicate how it might rule regarding the religious exemption and the new definition of “sex.” Churches and the courts had already struggled with the application of the exemption for religious organizations. Now they face greater challenges in determining its application to the employment practices of religious organizations. This is especially true of the new definition of “sex,” if compliance with the new definition violates an organization’s religious beliefs.

This article examines the scope of this exemption and explores how the statute applies to churches and religious ministries.

History of Title VII

In 1963, President Kennedy asked Congress to pass comprehensive civil rights legislation. The Civil Rights Act of 1964 was passed the following year. The statute protected voting rights and prohibited discrimination in federal programs and public accommodations.

The Civil Rights Act was controversial from its initial drafting, with many in Congress opposing one part or another. Like many other difficult-to-pass bills, the bill was altered to gain enough congressional support to make it into law. For example, since the Tenth Amendment of the US Constitution limits the federal authority to matters of interstate commerce, Title VII was limited to employers engaged in interstate commerce with 15 or more employees for each workday during 20 weeks of a calendar year (42 U.S.C. § 2000e-2(a), et seq).

Note. The italics used in the quoted matter in the following section have been added for emphasis.

Another sticking point was its application to churches and other religious employers. The First Amendment of the US Constitution prohibits Congress from passing statutes restricting the free exercise of religion. The House Judiciary Committee requested a complete exemption for religious organizations from Title VII to reflect this constitutional requirement. The Senate disagreed, believing the request was broader than necessary under the First Amendment.

The Senate changed the exemption to read:

[Title VII] shall not apply … to a religious corporation, association, or society with respect to the employment of individuals of a particular religion to perform work connected with the carrying on by such[organization] of its religious activities.

Afterward, the House agreed to the amended exemption, and President Johnson signed the Civil Rights Act into law.

But problems immediately arose in the enforcement of the religious exemption. The US Department of Labor (DOL) interpreted the exemption to apply only to members of that religious group employed to perform religious activities. This interpretation forced the DOL to decide what activities were religious and how many religious activities were required before the exemption could be applied to a specific position.

Congress reconsidered the religious organization exemption in 1972. The issue arose in the creation of the Equal Employment Opportunity Commission (EEOC). The final bill creating the EEOC deleted the word “religious” before the word “activities” in the statute.

Currently, Title VII states that it “shall not apply … to a religious corporation, association, or society with respect to the employment of individuals of a particular religion to perform work connected with the carrying on by such … [organization] of its activities” (42 U.S.C. § 2000e-1(a)).

The United States Congress Conference Report after the 1972 amendment stated:

The limited exemption … for religious corporations, associations, educational institutions or societies has been broadened to allow such entities to employ individuals of a particular religion in all their activities instead of the present limitation to religious activities.

The Conference Report also noted, however, that religious organizations “remain subject to the provisions of Title VII with regard to race, color, sex or national origin.”

What qualifies as a religious organization for a Title VII exemption?

Since 1972, the courts have created tests and criteria to determine a “religious organization” for Title VII’s exemption.

Lack of congressional guidance has left the exemption open to different interpretations by DOL, EEOC, law professors, and the courts. Even within some judicial districts, the judges do not interpret the exemption consistently. No universally accepted definition exists to identify a religious organization used in Title VII.

No single test exists, and no test is used universally for determining whether an entity qualifies as a religious organization. An IRS determination that the organization has church status has little or no bearing on whether the organization meets the Title VII religious organization test because the tests are different. After making that observation, the courts will typically look at, and weigh, one or more of these factors:

  1. whether the entity operates for a profit,
  2. whether it produces a secular product,
  3. whether the entity’s articles of incorporation or other pertinent documents state a religious purpose,
  4. whether it is owned, affiliated with or financially supported by a formally religious entity such as a church or synagogue,
  5. whether a formally religious entity participates in the [entity’s] management, for instance, by having representatives on the board of trustees,
  6. whether the entity holds itself out to the public as secular or sectarian,
  7. whether the entity regularly includes prayer or other forms of worship in its activities,
  8. whether it includes religious instruction in its curriculum, to the extent it is an educational institution, and
  9. whether its membership is made up of coreligionists.

LeBoon v. Lancaster Jewish Community Center, 503 F.3d 217, 226 (3d Cir. 2007).

While traditional churches may easily qualify, parachurch ministries have more difficulty. For example, the US Supreme Court rejected an appeal from the Washington Supreme Court, finding the state exemption from its state nondiscrimination statute for “religious organizations” did not protect the Seattle Gospel Mission from liability for failing to hire an attorney in a same-sex marriage case (Seattle Gospel Mission v. Woods, 142 S.Ct. 1094 (2022)).

Likewise, another court found that a downtown mission organization was not a religious organization for Title VII because it was not affiliated with a particular denomination or church (Scaffidi v. New Orleans Mission, 2020 WL 1531266 (E.D. La. 2020)).

In contrast, the Ninth Circuit Court of Appeals held that World Vision qualified for the religious organization exemption from Title VII. In a 2–1 decision, the court held that World Vision could terminate three employees because they changed their religious beliefs (Spencer v. World Vision, Inc., 619 F.3d 1109 (9th Cir. 2010)).

But the three judges could not agree on the test to evaluate whether an entity meets the definition of a religious organization. The dissenting judge would have limited the exemption to organizations that gather members together for prayer and religious instruction.

One of the judges affirmed World Vision’s status under this test:

(1) does the organization self-identify as a religious organization in its governing documents?

(2) does the organization engage in religious activities to further its religious purposes, and

(3) does it hold itself out to the public as a religious organization?

The other affirming judge added another factor to the above three-item list: Does the organization not engage in the exchange of goods and services for money?

From these brief examples, one can conclude that churches and parachurch ministries should examine the nine criteria listed above. From there, the church may determine how they can best meet the criteria for obtaining a Title VII exemption.

At a minimum, they should review their governing documents, incorporate a statement of beliefs into governance documents and policies, and represent to the public that they are a religious organization.

Title VII’s application

Once an organization believes it meets the qualifications required to be classified as a religious organization, it must determine what portion of Title VII’s nondiscrimination provisions apply.

An examination of the applicable court cases reveals three plausible, but inconsistent, interpretations (discussed below).

Understanding the foundation for various interpretations requires some basic understanding of the rules for statutory interpretation. All three interpretations utilize differing rules for statutory interpretation to reach different conclusions.

Since the US Supreme Court has not instructed the lower courts on the correct or preferred way to interpret the Title VII religious organization exemption, each court is free to interpret the statute using the US Supreme Court rules for statutory interpretation.

The US Supreme Court has adopted a general guide to statutory interpretation for use by the lower courts.

A complete review of the statutory interpretation rules isn’t possible for this article.

However, a few relevant rules should be noted.

First, the law should be given its plain meaning whenever possible.

Second, plain meaning should not be used if the language is ambiguous. Ambiguous means a reader could reasonably interpret the language in two or more ways.

If the language is ambiguous, the court should interpret the statute to give effect to every word because every word has a purpose.

If the statute remains ambiguous, the court should choose the interpretation to implement the congressional intent based on the legislative history.

Here, then, is a discussion of each interpretation and what each one might mean for a court’s decision.

Note. The italics used in the quoted matter in this section have been added for emphasis.

Interpretation 1: Textual or religiously motivated interpretation

The first interpretation is called the textual or religiously motivated interpretation. It indicates that the statute’s plain meaning requires that no part of Title VII applies to the employment practices of religious organizations.

Key point. This interpretation utilizes the first statutory interpretation rule: The statute should be given its plain meaning whenever possible.

The plain language of Title VII states that it “shall not apply … to a religious corporation, association, or society with respect to the employment of individuals of a particular religion to perform work connected with the carrying on by such … [organization] of its activities” (42 U.S.C. § 2000e-1(a)). If this interpretation is utilized, no other rules of statutory interpretation apply.

Under this interpretation, none of Title VII applies to the religious organization. A church is free to discriminate regarding applicants and employees based on race, color, religion, sex, or national origin. Based on this interpretation, if the church chooses not to hire a woman for a position because she is a woman, it is free to do so.

However, Congress has twice considered—and rejected—a blanket exemption for religious organizations. If a court found that the statute is ambiguous, the congressional rejection of this interpretation could invalidate this interpretation. Further, this interpretation potentially ignores the “employment of individuals of a particular religion” language.

Example. In 2023, the Fifth Circuit Court of Appeals left intact a lower court’s ruling in which it used the textual or religiously motivated interpretation method to find that Bear Creek Bible Church was exempt from Title VII as a religious organization (Briarwood Management, Inc. v. EEOC, ____ F.3d _______ (5th Cir. 2023)). This decision means the church could discriminate based on sexual orientation, sexual perception, gender identity, and transgender status without violating Title VII. The Fifth Circuit panel also ruled that the church could have different dress codes for men and women and require that employees use the bathroom associated with their biological gender.

Interpretation 2: The coreligionist interpretation

The coreligionist interpretation indicates that religious organizations may refuse to hire anyone not part of their denomination or church group.

Key point. This interpretation allows religious organizations to restrict employment to their denomination or church group.

The plain language of Title VII states that it “shall not apply … to a religious corporation, association, or society with respect to the employment of individuals of a particular religion to perform work connected with the carrying on by such … [organization] of its activities” (42 U.S.C. § 2000e-1(a)).

Applications vary

Some courts believe this language is ambiguous because it does not explicitly address how the exemption applies to the other protected classes. Some courts then looked at the legislative history. The 1972 amendment to Title VII added a statutory definition of religion. It states, “The term “religion” includes all aspects of religious observance and practice, as well as belief” (42 U.S.C. § 2000e-1(j)).

The authors of the 1972 amendment claimed the new language was to protect the religious rights of employees—not to expand the religious exemption of employers. Supposedly, the amended statute protected all religious organization employees instead of only those involved in religious activity.

Some courts have used this background in interpreting the Title VII religious organization exemption to prevent the application of Title VII to religious organizations only employing individuals who are part of the same denomination or church group.

This interpretation means that a Baptist church can require all its employees to be Baptist. It can also terminate an employee for failing to adhere to Baptist beliefs. It can refuse to hire Methodists. But the Baptist church must not discriminate against the other Title VII protected classes unless its discrimination is related to the church’s sincerely held religious beliefs.

Caution. All violations of such beliefs should provide comparable disciplinary actions. The inconsistent application of variances from their religious beliefs could lead a church into a potential Title VII violation if one of the protected classes is involved.

The US Supreme Court used this interpretation to allow a church to fire a gym worker at a facility owned by the church for failing to adhere to church beliefs and requirements (Corporation of the Presiding Bishop of The Church of Jesus Christ of Latter-day Saints v. Amos, 483 U.S. 327 (1987)).

The Ninth Circuit Court of Appeals has affirmed this approach twice. The Fourth Circuit Court of Appeals has also adopted this approach.

Interpretation 3: Belief and conduct interpretation

The third interpretation, called the belief and conduct interpretation, indicates that religious employers may discriminate based on religious beliefs as long those beliefs do not contradict the other protected classes of race, color, sex, or national origin.

Key point. This line of interpretation rejects the coreligionist and textual interpretation cases.

With the addition of the definition of religion, some courts believe that the artificial lines of church association were eliminated. Accordingly, no statutory basis exists for limiting the religious organization exemption to those who employ only individuals that are part of the denomination or church group.

Since the purpose of Title VII is to protect workers from specific types of discrimination, the exclusions from its coverage should be narrowly interpreted. These courts’ interpretation means that religious organizations may discriminate only based on the employee’s self-identified religious beliefs and practices that vary from the employing religious organization—and only if those beliefs do not relate to another Title VII protected class.

Example. A court affirmed the right of a Christian school owned and operated by a church to terminate a teacher who remarried after a divorce, contrary to the church’s teaching.

While the teacher was not of the same faith as the employer, she had agreed to follow the church’s teachings and beliefs while employed by the school. Since the teacher’s religious beliefs differed from the employer’s and were evidenced by her actions, the school could terminate her because it met the definition of a religious educational employer (Little v. Wuerl, 929 F.2d 944 (3d Cir. 1991).

With this interpretation, all potential applicants must review the organization’s religious beliefs before applying for the job and determine if such beliefs align with the applicants’ beliefs. Religious organizations may require potential applicants to take this step before applying for a position to attempt to come into alignment with this interpretation.

Suggestions for determining how to comply

Each church must determine how it will comply with Title VII. Here are four suggestions.

Purchase employment practices liability insurance

Every church with 15 or more employees should purchase employment practices liability insurance. This insurance benefits the church in two ways. First, it provides access to the insurance company’s risk management employment attorneys and HR professionals. Second, the insurance company will assist with the defense should an employee claim a Title VII violation. The policy should also cover employment related claims under the state equivalent of Title VII.

Identify ministerial exception positions

The church or ministry should distinguish and document ministerial exception positions from every other position. Since Title VII does not apply to the ministerial exception positions, the church does not face Title VII risk with those positions. (For more on this subject, see “Applying the Ministerial Exception to Church Employees.”

Review all pertinent documents

The church should review its governance documents, EEOC statements made by the church, the church’s employee handbook, and the church’s employment-related policies. If the EEOC statement includes “religion” as a protected class, the church will have a hard time claiming that it may discriminate based on religion. Further, the church should qualify its EEOC statement to say the church follows Title VII only to the extent that Title VII applies to it.

Require employment applicants to agree with the church’s beliefs statement

The church should require all potential applicants to agree with the church’s statement of beliefs before applying for any position. The employee handbook and employment policies should require employees to follow the church’s sincerely held beliefs and disciplinary action should occur for all identified violations. This practice will isolate the Title VII issue to religious discrimination. Religious discrimination cases without considering the other protected classes will likely be easier to defend.

Preparation creates clarity in employment practices

Title VII may or may not apply to the church or a religious ministry. Title VII may or may not apply to some employment positions. With this statute, it is not always clear. And similar state employment laws may include a different definition of religious organization and protected classes of employees.

Preparation creates clarity for employment decisions, so a church or ministry must decide its risk tolerance, especially when the church’s sincerely held religious beliefs conflict with Title VII’s protected classes of employees. The church must also indicate whether it believes Title VII applies to all nonministerial exception positions. As part of its determination, every church should engage competent legal counsel to assist in drafting employment practices consistent with its religious beliefs.

Return to series home page.

Frank Sommerville is a both a CPA and attorney, and a longtime Editorial Advisor for Church Law & Tax.

October Key Tax Dates 2022

Deadline for church employees with six-month extensions for filing 2021 tax returns—and other key dates to note.

Monthly Requirements

If your church or organization reported withheld taxes of $50,000 or less during the most recent lookback period (for 2022 the lookback period is July 1, 2020, through June 30, 2021), then withheld payroll taxes are deposited monthly. Monthly deposits are due by the 15th day of the following month.

Note, however, that if withheld taxes are less than $2,500 at the end of any calendar quarter (March 31, June 30, September 30, or December 31), the church need not deposit the taxes. Instead, it can pay the total withheld taxes directly to the IRS with its quarterly Form 941. Withheld taxes include federal income taxes withheld from the employee’s wages, the employee’s share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes.

Semiweekly requirements

If your church or organization reported withheld taxes of more than $50,000 during the most recent lookback period (for 2022 the lookback period is July 1, 2020, through June 30, 2021), then the withheld payroll taxes are deposited semiweekly.

This means that for paydays falling on Wednesday, Thursday, or Friday, the payroll taxes must be deposited on or by the following Wednesday. For all other paydays, the payroll taxes must be deposited on the Friday following the payday.

Note further that large employers having withheld taxes of $100,000 or more at the end of any day must deposit the taxes by the next banking day. The deposit days are based on the timing of the employer’s payroll. Withheld taxes include federal income taxes withheld from the employee’s wages, the employee’s share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes.

October 17, 2022: Form 1040 due for taxpayers who filed for a six-month extension

Last day to file a 2021 federal income tax return (Form 1040) for taxpayers who obtained an automatic six-month extension by filing a Form 4868 by April 18, 2022 (April 19 if you live in Maine or Massachusetts).

October 30, 2022: File employer exemption (Form 8274)

Churches hiring their first nonminister employee between July 1 and September 30 may exempt themselves from the employer’s share of FICA (Social Security) taxes by filing Form 8274 by this date. (Nonminister employees are thereafter treated as self-employed for Social Security purposes).

The exemption is only available to churches that are opposed on the basis of religious principles to paying the employer’s share of FICA taxes.

October 31, 2022: File quarterly federal tax return (Form 941) with payment

Churches having nonminister employees (or one or more ministers who report their federal income taxes as employees and who have elected voluntary withholding) must file an employer’s quarterly federal tax return (Form 941) for the third calendar quarter by this date.

Enclose a check in the total amount of all withheld taxes (withheld income taxes, withheld FICA taxes paid by the employee, and the employer’s share of FICA taxes) if less than $2,500 on September 30, 2022.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Key Tax Dates September 2022

Make quarterly estimated payments and meet monthly or semiweekly requirements.

Monthly requirements

If your church or organization reported withheld taxes of $50,000 or less during the most recent lookback period (for 2022, the lookback period is July 1, 2020, through June 30, 2021), then withheld payroll taxes are deposited monthly. Monthly deposits are due by the 15th day of the following month.

Note, however, that if withheld taxes are less than $2,500 at the end of any calendar quarter (March 31, June 30, September 30, or December 31), the church need not deposit the taxes.

Instead, it can pay the total withheld taxes directly to the IRS with its quarterly Form 941. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes.

Semiweekly requirements

If your church or organization reported withheld taxes of more than $50,000 during the most recent lookback period (for 2022, the lookback period is July 1, 2020, through June 30, 2021), then the withheld payroll taxes are deposited semiweekly.

This means that for paydays falling on Wednesday, Thursday, or Friday, the payroll taxes must be deposited on or by the following Wednesday. For all other paydays, the payroll taxes must be deposited on the Friday following the payday.

Note further that large employers having withheld taxes of $100,000 or more at the end of any day must deposit the taxes by the next banking day. The deposit days are based on the timing of the employer’s payroll. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes.

September 15, 2022: Quarterly estimated tax payments for certain employees and churches

Filing for certain ministers and self-employed workers

Ministers (who have not elected voluntary withholding) and self-employed workers must file their third quarterly estimated federal tax payment for 2022 by this date. A similar rule applies in many states to payments of estimated state taxes.

Nonminister employees of churches that filed a timely Form 8274 (waiving the church’s obligation to withhold and pay FICA taxes) are treated as self-employed for Social Security, and as a result are subject to the estimated tax deadlines with respect to their self-employment (Social Security) taxes unless they ask their employing church to withhold an additional amount of income taxes from each paycheck that will be sufficient to cover self-employment taxes. Use a new Form W-4 to make this request (the additional withholding is reported on line 4(c)).

Payments for unrelated business income tax liability

A church must make quarterly estimated tax payments if it expects an unrelated business income tax liability for the year to be $500 or more. Use IRS Form 990-W to figure your estimated taxes. Quarterly estimated tax payments of one-fourth of the total tax liability are due by April 18 (April 19 if you live in Maine or Massachusetts), June 15, September 15, and December 15, 2022, for churches on a calendar-year basis. Deposit quarterly tax payments electronically using the Electronic Federal Tax Payment System (EFTPS).

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Key Tax Dates August 2022

File employer’s quarterly federal tax return and meet monthly or semiweekly requirements.

Monthly requirements

If your church or organization reported withheld taxes of $50,000 or less during the most recent lookback period (for 2022, the lookback period is July 1, 2020, through June 30, 2021), then withheld payroll taxes are deposited monthly. Monthly deposits are due by the 15th day of the following month.

Note, however, that if withheld taxes are less than $2,500 at the end of any calendar quarter (March 31, June 30, September 30, or December 31), the church or organization need not deposit the taxes.

Instead, it can pay the total withheld taxes directly to the IRS with its quarterly Form 941. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes.

Semiweekly requirements

If your church or organization reported withheld taxes of more than $50,000 during the most recent lookback period (for 2022, the lookback period is July 1, 2020, through June 30, 2021), then the withheld payroll taxes are deposited semiweekly.

This means that for paydays falling on Wednesday, Thursday, or Friday, the payroll taxes must be deposited on or by the following Wednesday. For all other paydays, the payroll taxes must be deposited on the Friday following the payday.

Note further that large employers having withheld taxes of $100,000 or more at the end of any day must deposit the taxes by the next banking day. The deposit days are based on the timing of the employer’s payroll. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes.

August 10, 2022: Employer’s quarterly federal tax return—Form 941

Churches having nonminister employees (or one or more ministers who report their federal income taxes as employees and who have elected voluntary withholding) may file their employer’s quarterly federal tax return (Form 941) by this date instead of July 31 if all taxes for the second calendar quarter have been deposited in full and on time.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Key Tax Dates June 2022

Review housing allowance designations, make quarterly payments, and meet monthly or semiweekly requirements.

Monthly requirements

If your church or organization reported withheld taxes of $50,000 or less during the most recent lookback period (for 2022 the lookback period is July 1, 2020, through June 30, 2021), then withheld payroll taxes are deposited monthly.

Monthly deposits are due by the 15th day of the following month. Note, however, that if withheld taxes are less than $2,500 at the end of any calendar quarter (March 31, June 30, September 30, or December 31), the church or organization need not deposit the taxes.

Instead, it can pay the total withheld taxes directly to the IRS with its quarterly Form 941. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes (7.65 percent of wages), and the employer’s share of Social Security and Medicare taxes (an additional 7.65 percent of employee wages).

Semiweekly requirements

If your church or organization reported withheld taxes of more than $50,000 during the most recent lookback period (for 2022 the lookback period is July 1, 2020, through June 30, 2021), then the withheld payroll taxes are deposited semiweekly.

This means that for paydays falling on Wednesday, Thursday, or Friday, the payroll taxes must be deposited on or by the following Wednesday. For all other paydays, the payroll taxes must be deposited on the Friday following the payday.

Note further that large employers having withheld taxes of $100,000 or more at the end of any day must deposit the taxes by the next banking day. The deposit days are based on the timing of the employer’s payroll. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes (7.65 percent of wages), and the employer’s share of Social Security and Medicare taxes (an additional 7.65 percent of employee wages).

June 15, 2022: Quarterly estimated tax payments for certain employees and churches

Filing for certain ministers and self-employed workers

Ministers (who have not elected voluntary withholding) and self-employed workers must file their second quarterly estimated federal tax payment for 2022 by this date. A similar rule applies in many states to payments of estimated state taxes.

Nonminister employees of churches that filed a timely Form 8274 (waiving the church’s obligation to withhold and pay FICA taxes) are treated as self-employed for Social Security, and accordingly are subject to the estimated tax deadlines with respect to their self-employment (Social Security) taxes unless they ask their employing church to withhold an additional amount of income taxes from each paycheck that will be sufficient to cover self-employment taxes (use a new Form W-4, Step 4(c), to make this request).

Payments for unrelated business income tax liability

A church must make quarterly estimated tax payments if it expects an unrelated business income tax liability for the year to be $500 or more. Use IRS Form 990-W to figure your estimated taxes. Quarterly estimated tax payments of one-fourth of the total tax liability are due by April 15, June 15, September 15, and December 15, 2022, for churches on a calendar year basis. Deposit quarterly tax payments electronically using the Electronic Federal Tax Payment System (EFTPS).

June 30, 2022: Review housing or parsonage allowance designations

Now is a good time to review the 2022 housing or parsonage allowances designated for all ministers on staff. If an allowance designated for 2022 is clearly below actual housing expenses, then the church board should consider declaring a larger portion of the minister’s remaining compensation as a housing or parsonage allowance.

A church is free to designate any portion of a minister’s compensation as a housing allowance, but remember that clergy who own their home cannot claim a housing allowance exclusion greater than the fair rental value of the home (furnished, including utilities). Therefore, the allowance ordinarily should not be significantly more than this amount.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Key Tax Dates for May 2022

Along with monthly and semiweekly requirements, note quarterly filing and forms pertinent to your church or ministry.

Monthly requirements

If your church or organization reported withheld taxes of $50,000 or less during the most recent lookback period (for 2022 the lookback period is July 1, 2020, through June 30, 2021), then withheld payroll taxes are deposited monthly.

<img class=”alignleft size-thumbnail wp-image-52069″ src=”https://www.churchlawandtax.com/wp-content/uploads/sites/2/2023/04/128783.webp?w=150&h=150&crop=1″ alt=”” width=”150″ height=”150

Monthly deposits are due by the 15th day of the following month. Note, however, that if withheld taxes are less than $2,500 at the end of any calendar quarter (March 31, June 30, September 30, or December 31), the church or organization need not deposit the taxes.

Instead, it can pay the total withheld taxes directly to the IRS with its quarterly Form 941. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes (7.65 percent of wages), and the employer’s share of Social Security and Medicare taxes (an additional 7.65 percent of employee wages).

Semiweekly requirements

If your church or organization reported withheld taxes of more than $50,000 during the most recent lookback period (for 2022 the lookback period is July 1, 2020, through June 30, 2021), then the withheld payroll taxes are deposited semiweekly.

This means that for paydays falling on Wednesday, Thursday, or Friday, the payroll taxes must be deposited on or by the following Wednesday. For all other paydays, the payroll taxes must be deposited on the Friday following the payday.

Note further that large employers having withheld taxes of $100,000 or more at the end of any day must deposit the taxes by the next banking day. The deposit days are based on the timing of the employer’s payroll. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes (7.65 percent of wages), and the employer’s share of Social Security and Medicare taxes (an additional 7.65 percent of employee wages).

May 10, 2022: Employer’s quarterly federal tax return—Form 941

Churches having nonminister employees (or one or more ministers who report their federal income taxes as employees and who have elected voluntary withholding) may file their employer’s quarterly federal tax return (Form 941) by this date instead of April 30 if all taxes for the first calendar quarter have been deposited in full and on time.

May 16, 2022: File forms 990, 990-T, and 5578

Information return—Form 990

An annual information return (Form 990) for tax-exempt organizations is due by this date for tax year 2021. Form 990 summarizes revenue, expenses, and services rendered. Organizations exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code must report additional information on Schedule A.

Note. Churches, conventions and associations of churches, “integrated auxiliaries” of churches, and church-affiliated elementary and secondary schools are among the organizations that are exempt from this reporting requirement. Organizations not exempt from this reporting requirement must file the Form 990 if they normally have annual gross receipts of $50,000 or more.

Unrelated business income tax return—Form 990-T

An unrelated business income tax return (Form 990-T) must be filed by this date by churches and any other organization exempt from federal income tax that had gross income from an unrelated trade or business of $1,000 or more in 2021.

Certificate of racial nondiscrimination—Form 5578

Annual certification (for calendar year 2021) of racial nondiscrimination by a private school exempt from federal income tax (Form 5578) must be filed by this date by schools that operate on a calendar-year basis.

Fiscal year schools must file the form by the 15th day of the fifth month following the end of their fiscal year. This form must be filed by preschools, primary and secondary schools, and colleges, whether operated as a separate legal entity or by a church.

If an organization is required to file Form 990 (Return of Organization Exempt From Income Tax), or Form 990-EZ (Short Form Return of Organization Exempt From Income Tax), the certification must be made on Schedule E (Form 990 or 990-EZ), Schools, rather than on this form.

Key Tax Dates April 2022

Filing returns, key quarterly deadlines, exemptions, and more.

Monthly requirements

If your church reported withheld taxes of $50,000 or less during the most recent lookback period (for 2022 the lookback period is July 1, 2020, through June 30, 2021), then withheld payroll taxes are deposited monthly.

Monthly deposits are due by the 15th of the following month. Note, however, that if withheld taxes are less than $2,500 at the end of any calendar quarter (March 31, June 30, September 30, or December 31), the church need not deposit the taxes.

Instead, it can pay the total withheld taxes directly to the IRS with its quarterly Form 941. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes.

Semiweekly requirements

If your church reported withheld taxes of more than $50,000 during the most recent lookback period (for 2022 the lookback period is July 1, 2020, through June 30, 2021), then the withheld payroll taxes are deposited semiweekly with a bank.

This means that for paydays falling on Wednesday, Thursday, or Friday, the payroll taxes must be deposited on or by the following Wednesday. For all other paydays, the payroll taxes must be deposited on the Friday following the payday.

Note further that large employers having withheld taxes of $100,000 or more at the end of any day must deposit the taxes by the next banking day. The deposit days are based on the timing of the employer’s payroll. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes (7.65 percent of wages), and the employer’s share of Social Security and Medicare taxes (an additional 7.65 percent of employee wages).

April 18, 2022: Tax returns, amended returns, extension, exemption from Social Security, and quarterly payment

Individual tax returns

Federal income tax and self-employment tax returns by individuals for calendar year 2021 are due by this date.

Amended federal income tax returns

Last day for most taxpayers to file an amended federal income tax return (Form 1040X) for calendar year 2019 (unless you received an extension of time to file your 2019 return). See the instructions for Form 1040X on the IRS website.

Extension for file tax returns

Filing Form 4868 gives taxpayers until October 15 to file their 2021 tax return but does not grant an extension of time to pay taxes due. Taxpayers should pay their federal income tax due by April 15, 2022, to avoid interest and penalties.

Exemption from Social Security coverage

Last day to file an exemption from Social Security coverage (Form 4361) for most eligible clergy who began performing ministerial services in 2020 (deadline extended if applicant obtains an extension of time to file Form 1040).

Quarterly estimated tax payments for certain employees and churches

Ministers who have not elected voluntary withholding and self-employed workers must file their first quarterly estimated federal tax payment for 2022 by this date (a similar rule applies in many states to payments of estimated state taxes).

Nonminister employees of churches that filed a timely Form 8274 (waiving the church’s obligation to withhold and pay Social Security and Medicare taxes) are treated as self-employed for Social Security purposes, and are subject to the estimated tax deadlines with respect to their self-employment (Social Security) taxes unless they ask their employing church to withhold an additional amount of income taxes from each paycheck (use a new Form W-4 to make this request) that will be sufficient to cover self-employment taxes.

A church must make quarterly estimated tax payments if it expects an unrelated business income tax liability for the year to be $500 or more. Use IRS Form 990-W to figure your estimated taxes. Quarterly estimated tax payments of one-fourth of the total tax liability are due by April 15, June 15, September 15, and December 15, 2022, for churches on a calendar year basis. Deposit quarterly tax payments electronically using EFTPS.

April 29, 2022: Employer exemption

Churches hiring their first nonminister employee between January 1, 2022, and March 31, 2022, may exempt themselves from the employer’s share of Social Security and Medicare taxes by filing Form 8274 by this date (nonminister employees are thereafter treated as self-employed for Social Security purposes).

The exemption is only available to churches that are opposed on the basis of religious principles to paying the employer’s share of Social Security and Medicare taxes.

April 30, 2022: Employer’s quarterly federal tax returns

Churches having nonminister employees (or one or more ministers who report their federal income taxes as employees and who have elected voluntary withholding) must file an employer’s quarterly federal tax return (Form 941) for the first calendar quarter of 2022 by this date.

Enclose a check in the total amount of all payroll taxes (withheld income taxes, the withheld employee’s share of Social Security taxes, and the employer’s share of Social Security taxes) if these taxes were less than $2,500 on March 31, 2022.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Key Tax Dates March 2022

Monthly and semiweekly requirements for depositing payroll taxes.

Monthly requirements

If your church reported withheld taxes of $50,000 or less during the most recent lookback period (for 2022 the lookback period is July 1, 2020, through June 30, 2021), then withheld payroll taxes are deposited monthly.

Monthly deposits are due by the 15th the following month. Note, however, that if withheld taxes are less than $2,500 at the end of any calendar quarter (March 31, June 30, September 30, or December 31), the church need not deposit the taxes.

Instead, it can pay the total withheld taxes directly to the IRS with its quarterly Form 941. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes.

Semiweekly requirements

If your church reported withheld taxes of more than $50,000 during the most recent lookback period (for 2022 the lookback period is July 1, 2020, through June 30, 2021), then the withheld payroll taxes are deposited semiweekly with a bank.

This means that for paydays falling on Wednesday, Thursday, or Friday, the payroll taxes must be deposited on or by the following Wednesday. For all other paydays, the payroll taxes must be deposited on the Friday following the payday.

Note further that large employers having withheld taxes of $100,000 or more at the end of any day must deposit the taxes by the next banking day. The deposit days are based on the timing of the employer’s payroll. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes (7.65 percent of wages), and the employer’s share of Social Security and Medicare taxes (an additional 7.65 percent of employee wages).

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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