Pastoral Finances

April 09, 2021

Category: Pastors | Tags: ministers money, personal finance

Posted by Meagan

April is Financial Literacy Month. A couple years ago, we wrote this post where we highlighted a few tracking apps for your personal finances and for submitting expenses to your church. Those items still apply, but today we wanted to go into detail about some other helpful personal finance information; specifically for Ministers.

stewardship is working with the resources God provides — *Stewardship quote*

“In the 1960s Time Magazine every year issued small cards with a slogan that expressed the mood of the times. One year they issued a card that read, ‘Money is not the most important thing in life.’ On the back of the card they added, ‘but it is way out in front of whatever is in second place.’ Most pastors do not want to talk about money, but if they do not, they do not preach and teach the whole counsel of God. There is a lot about money in the Bible.”
– The Pastor and Personal Finances, Lifeway Research

Prepare for the Paperwork

Backup Documentation

In our previous post on the subject, there was a plug for backup documentation, and we will mention it again today. Keep your receipts – either in a paper system or electronically. It doesn’t matter how you keep them, but the IRS does care. Especially when it comes to matching receipts to expenses and proving housing allowance; just to name a couple big areas.

Tax Payments

The IRS also requires quarterly estimated tax payments (that do not match the calendar quarters). Or they allow the option of taking out extra federal withholding tax from your paychecks to compensate for the amount owed for social security. Click here to view when quarterly estimated tax payments are due.

Ministerial taxes are a bit of a challenge, so we recommend that Ministers meet with a qualified, experienced tax accountant who has experience with clergy tax preparation, to make sure taxes are reported correctly.

All taxpayers should use the new Tax Withholding Estimator to do a Paycheck Checkup. This tool helps people make sure their employers are taking out the right amount of tax from the employee’s paychecks. The money withheld from an employee’s paychecks throughout the year should cover the amount of tax they owe.

Retirement

Preparing for retirement is often a big subject for Ministers. Ministers do have the option of opting out of paying social security. Only for religious objections – and once that decision is made, it is final. There are other benefits that may not be received, such as Medicare, disability, or spousal/dependent survival benefits.

Housing Allowance | Minister’s Personal Finance

Each year, the minister estimates the amount of eligible housing expenses to be incurred during the following year. This amount is submitted to the governing body of the church for approval in the year prior to the year claimed. When paid to the minister, that housing amount is excluded from the taxable federal and state compensation. The housing allowance is included in the computation of Social Security/Medicare taxes (SECA) at the self-employment tax rate; unless the minister is retired.

There are other helpful items regarding the subjects of SECA, FICA, and Housing Allowance, that you can learn more about on our Ministerial Payroll post.

“In some ways, pastors are different because we can claim a housing allowance and also opt out of paying into (and receiving benefits from) Social Security/Medicare. But in other ways, we are not any different from other believers. We are responsible to provide for our families and also challenged by the Lord to be generous in our giving.”
– Eric Geiger, 6 Thoughts for Pastors on Personal Finance

Advocating for Yourself and Your Team’s Compensation

First, let’s recognize the complexity of this issue, compensation can be a touchy subject. But let’s back up and not talk about just the Pastor’s salary, but fair compensation for all church employees. A resource we recommend for going through this process is the Church Law & Tax Compensation Handbook for Church Staff.

Another great way to make sure the compensation is actually describing the job role, is to have ministry descriptions clearly set up before the hire. Seeing what the duties of a particular job actual will entail can be a benefit to keeping an accurate salary associated with the role.

“’One year in [to planting the church], an advisor told me that I couldn’t keep living like that, and I had to take a raise. I realized I had swung too far the other way and did some study on what fair compensation looked like for our family,’ he said.
“Not only did Shields take the pay raise, but he and his leadership studied a theology of compensation to develop a coherent vision for how the church would set salaries. He believes many pastors either feel too ashamed to broach the subject with their lay leaders or don’t know how to advocate for themselves, so they suffer in silence, move on to another church, or leave ministry altogether.”
– Pastors Don’t Do It For The Money, But Having Enough to Retire Would Be Nice, Christianity Today

Being Good Stewards

We will end on this note. We probably don’t need to quote Paul about the importance of being good stewards, but it’s still a good reminder.

“They are to do good, to be rich in good works, to be generous and ready to share” – 1 Timothy 6:18

Importance of Personal Financial Literacy:

Yes, personal finances can be tricky, and if this is not your strong suit, we encourage you to reach out to qualified experts for help with your particular case. This frees up your time and energy to focus on your ministry. With the added bonus of having confidence that your personal finances are being handled correctly.

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April 09, 2021