For additional guidance, go to www.IRS.gov and download IRS General Instructions for Forms W-2 and W-3.

Completing Form W-2

Box 1 (Wages, tips, other compensation)

Boxes 2 to 6 (Federal income tax/Social Security tax withheld)

  • List the tax amounts withheld for lay employees.
  • For ordained staff, leave blank.
  • If your minister has arranged for voluntary withholding of federal income tax, include the amount of withholding in Box 2.
  • For clergy not treated as self-employed for federal tax purposes, include contributions to the Member Contribution Plan in Boxes 3 and 5.

Box 10 (Dependent care benefits)

  • Report the total amount of dependent care benefits provided under a Flexible Spending Plan, whether paid or incurred by the employer or not for the employee.
  • Include the fair market value of any employer-provided or employer-sponsored day care facility and amounts paid or incurred in an FSA.
  • The total should include any amount in excess of the $5,000 exclusion (also included in Box 1).

Box 12a, b, c, d

For each form of reported compensation, write the appropriate letter in the “Code” column and then enter the dollar amount.

C  Include “imputed income” equal to the annual cost of employer-provided group term life insurance in excess of $50,000 (see page 23 for how to calculate this amount).
E   Include all amounts deferred via Member Contribution Plan or any other 403(b) Salary Reduction Agreement.
L  If your church reimburses the employee under an accountable plan in
excess of the standard IRS mileage or per diem rates, enter the portion of reimbursement that is equal to the amount allowed by the appropriate IRS rate. Do not include allowance reimbursement in Box 1 if the total is less than, or equal to, the amounts of the IRS mileage or per diem rate.
P  Include qualified moving expenses reimbursed to the employee that are
not reported as taxable income in Box 1. (Expenses an employer pays directly to a moving company on behalf of the employee are no longer reported on Form W-2.)

Box 13 (Statutory employee/Retirement plan/Third-party sick pay)

Check “Retirement Plan” for members of the Comprehensive Plan, Retirement Only Plan or the Member Contribution Plan.

Box 14 (Other)

This box is informational. You have the option of using it to report the amounts of the housing allowance, parsonage rental value and/or utilities allowance.

To avoid taxation of expense reimbursements, have an accountable plan

You reimburse your employees for work-related expenses. How can you keep those payments from being taxed as additional income? Adopt an “accountable reimbursement plan” that follows IRS rules.

An accountable plan requires employees to substantiate each business-related expense. They must also return to you any advanced funds that were in excess of the actual expense.

Your board of trustees must pass a resolution defining the criteria for ministry-related expenses. For more information, visit www.mmbb.org and search for “Guide to Negotiating Pastor Compensation” or contact us at 800.986.6222.