Compensation planning for clergy and other church staff presents several unique tax issues that are not well understood by many church leaders and their advisers. This article looks at issues related to three components (or possible components) of the compensation package to review when structuring compensation plans.
The most basic component of church staff compensation is salary. There are two important considerations to keep in mind with respect to staff salaries: the amount of the salary and the use of salary reduction agreements. These two issues will be discussed separately.
Staff salaries ordinarily are set by the church's governing authority, such as a board or committee. Churches generally may pay any amount they wish, with one important exception. If a church pays unreasonably high compensation to a pastor or other employee, there are two possible consequences: