Unemployment Benefits For Church Employees

Unemployment compensation provides workers who have lost their job, through no fault of their own, with monetary payments for a set amount of time or until they find a new job. Most employers are required to pay federal and state unemployment taxes, which provide the funds to pay unemployment compensation. Generally, churches are not required to pay these taxes because they are exempt from the Federal Unemployment Tax Act (FUTA) under section 501(c)(3) of the Internal Revenue Code. However, not paying the tax means church employees will not be eligible to collect unemployment benefits.

Churches Must Voluntarily Pay for Benefits

Churches that want employees to receive unemployment compensation must develop a policy and method for willingly paying benefits. Churches can:

  • Purchase unemployment insurance through a private insurer.
  • Reserve funds for severance packages.
  • Reimburse the state for unemployment benefits.

Funds for federal unemployment should never be deducted from an employee’s wages Churches that choose not to cover unemployment should take care to communicate to potential and current employees that benefits will not be available if they lose their job.

State Requirements Vary

Requirements of the State Unemployment Tax Authority (SUTA) vary by state. A few states  now require churches and ministries to pay state unemployment taxes, but most offer an exemption in the same way as FUTA. Contact your state's department of workforce development for SUTA requirements.

The information in this article 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. We strongly encourage you to regularly consult with a local attorney as part of your risk management program.

You could claim up to $33,000/employee with the
Employee Retention Credit.

Select your organization type
to learn more.

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