Pastoral Budgets FAQ
Both the church and the pastoral staff benefit from a thoughtful and orderly procedure to plan the pastoral budget. MMBB strongly recommends that churches budget pastoral compensation separately from benefits and ministry-related expenses. Use the Pastoral Budget Guidelines and Pastoral Budget Worksheet that follow to plan your church budget.
Q: How can we start to plan a pastoral budget?
A: If you do not have one already, establish a Pastoral Relations Committee or Church/Staff Relations Committee for multiple-staff churches. This committee takes the initiative to talk with the minister and represent the minister’s needs. Many ministers are hesitant to discuss their financial needs. Among the Pastoral Relations Committee’s many functions is fostering open communication about the minister’s needs and advocating for fair compensation with other church groups.
Compensation includes cash salary and a parsonage and/or housing allowance, including utilities. Separate the ministry-related expenses of the church from the minister’s compensation and reimburse him/her separately. The minister should not pay out of his or her own pocket for a book on sermon preparation or pizza for the youth group. Use an “accountable plan” to establish a budget for reimbursable expenses.
Q: What is an accountable plan?
A: An accountable plan is a business-expense reimbursement arrangement under which ministry-related expenses are reimbursed, tax free, to the minister. The reimbursement amount is not reported as taxable income on the employee’s Form W-2 or Form 1040. See the “Tax Advantages for Ministers and Other Church Employees” section of this booklet, and Federal Reporting Requirements for Churches by Richard R. Hammar, available at no charge from MMBB.
Q: What is a Social Security/Medicare tax offset?
A: While the IRS generally considers clergy serving churches as employees for federal income tax purposes, they are considered self-employed by the government for Social Security/Medicare tax purposes. In other words, ministers must pay their own Social Security/Medicare taxes (15.3% of annual compensation). For 2011 this rate was reduced to 13.3%. At the time of this publication, it was not yet known if this reduction would remain in place for 2012.
Churches are not permitted to pay the Social Security/Medicare tax for their pastors, but churches must pay the employer portion of the Social Security/Medicare tax for lay employees.
Most churches assist their ministers to pay Social Security and Medicare by providing them with a Social Security/Medicare tax offset of at least 50% of the tax. The Social Security/ Medicare tax offset is considered taxable income to the minister. In the church budget, the offset appears separately from salaries. While such an offset is taxable income for ministers, it provides a helpful and much appreciated way for a church to assist its ordained staff members.
Q: Where can we obtain medical and dental coverage for our minister?
A: The MMBB PremierHealth plan offers medical and dental coverage for ministers and lay employees of eligible churches and organizations. Some regional organizations provide group coverage for those in their region. See the “Health Insurance” section of this booklet.
From the 2012 MMBB Guide for Church-Related Employers. For the full guide, please visit our Download Documents & Resources section.