Beware of this scenario: A payroll processor at another church suggests that your minister claim 15 dependents on a Form W-4 because that’s how her church “has always done it.” Why do this? The reasoning seems straightforward: a claim of 15 dependents would ensure that a minister’s pay is not subject to federal income tax.
Submitting an accurate Form W-4 is important; an inaccurate claim can have serious consequences. The problem with a minister declaring more dependents than he or she actually has just to avoid federal tax withholding is threefold:
While withholding federal income tax from paychecks is optional for ministers, it is important to note that ministers are required to pay these taxes like everyone else. A minister can “opt in” to withholding the required federal tax income amount by voluntarily completing a Form W-4. A set dollar amount or allowance is subtracted from each paycheck to cover annual taxes. The IRS Withholding Calculator can help determine your minister’s correct withholding amount. Remember, updating a Form W-4 requires a new form submission—changing or altering an existing form is not allowed. Contact a licensed attorney or tax professional to ensure that any changes you want to make comply with federal law. If you’d like to read the four other tips in this series, download Payroll and the Church: 5 Things That Ministries Get Wrong from MinistryWorks. The information provided in this document is intended to be helpful, but it does not constitute legal advice and is not a substitute for the advice from a licensed attorney in your area. Please consult your attorney when creating, reviewing, or revising policies and procedures.