The Pastor's Salary

8/3/2019 The Pastor's Salary

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The

Pastor

andHis

Salary

Package

bb J a n u a r y / F e b r u a r y 2 0 0 9 2009 Regular Baptist Press. All rights reserved. Used by permission.


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James Ricka

n the mid-1960s as a young accountant, I began helping my pastorprepare his state and ederal tax returns. I was surprised at his meagersalary, lack o ringe benets, and inability to provide nancially orhis uture. His amily lived in a church-owned parsonage totally con-trolled by the church; they couldnt even paint a wal l without committeeapproval. It was a large armhouse that was dicult to maintain andexpensive to heat. I remember visiting that parsonage and nding his

wie in tears over the rustration o living under those conditions. And Iremember thinking, Tis is not right. Little did I know how that experi-ence would begin to sow the seeds or the Stewardship Services Founda-tion, a ministry that would allow me to devote my energies to counselingpastors regarding nances, helping them prepare their personal incometax returns, and teaching church boards how to structure pastors salarypackages within the limits o IRS tax law. As a result, in 1977 the Stew-ardship Services Foundation ministry was born.

A church board needs to know about salary packages and their properapplication in the budget process. Te most important issue when itcomes to this subject is the boards attitudea proper understanding o

the salary package issue and the desire to meet the needs o the pastors amily with aspirit o generosity.

p a c k a g e s

A pastor requires a cash salaryto meethis amilys physical needs independent

o his wie having to work. A goodstarting point would be to review theirpersonal budget and build on it. Apastor who struggles to provide or hisamily wil l hesitate to teach Biblicalstewardship rom the pulpit. I he cantlive it, he shouldnt teach it.

When a church calls a pastor (whether he be senior, youth, music, or

visitation), it is important to consider the following eight issues.

A pastor should have a full-familymedical plan that provides adequatehealth insurance and protects hisamily and the church in the evento a catastrophic illness or accident.(Tis can be a tax-ree ringe benet.)

A pastor should have disability insurance.Tis is a cash replacement that provides in-come and protects his amily and the church

in case o a disabling illness or accident. (Itcan be a tax-ree ringe benet.)

Every pastor needs a retirement plan. Coupledwith Social Security, it should provide an amountthat would give the pastor approximately 80 per-

cent o his take-home pay at retirement, assuminghe has a debt-ree home. I he has opted out oSocial Security, which I do not advise, the planmust be more aggressive to meet his needs.

bJ a n u a r y / F e b r u a r y 2 0 0 9 2009 Regular Baptist Press. All rights reserved. Used by permission.


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Every pastor pays the self-employment tax.Tisissue is oten misunderstood. A pastor is a dual statusemployee: he is an employee or income tax purposesbut sel-employed or Social Security and Medi-care purposes (called sel-employment tax). Insteado paying 7.65 percent or his Social Security andMedicare and his employer paying 7.65 percent as allother employees do, he must pay 15.3 percent (minusa small credit).

I recommend that the church include in his salaryan amount that would cover the 7.65 percent that thechurch would normally pay i he werent the pastor.

Because he must pay taxes on the additional 7.65percent, a proper increase would be 9.8 percent.

A pastor should have a housing/parsonage allow-ance. I have advised churches or over 30 years to getout o the parsonage business. I think its importantto get a pastor into his own home as soon as possibleor at least ve reasons:

Retirement: Owning a home at retirement is a keyingredient to retirement planning.Security: Owning their own home provides secu-rity or the pastors amily, particularly his wie.Privacy: Te amily can decorate how they want;

its theirhome.Longevity: Te amily eels more attached to thecommunity because they have a stronger sense obelonging.

ax purposes: Income tax law provides or gener-ous benets to the pastor who is buying his ownhome. Federal and state income taxes are greatlyreduced and sometimes eliminated due to thehousing allowance and the double deduction ormortgage interest and real estate taxes.

Every church should have a professional expensereimbursement fund or the pastoral sta. Te IRSlooks at a pastor as a businessman and recognizesthat he incurs reimbursable proessional expensesthat allow him to perorm his duties and should bepaid by the church (automobile mileage, coner-ences, entertainment, supplies, anything pertaining

to his responsibilities). In reality, these expenses areincurred or the benet o the church, not the pastor.

A pastors amily needs him to carrylife insurance. Ideally this should be$100,000 o term lie insur-ance, paid by the church, with the wie as benecia-ry. Tis coverage protects the church and provides orthe pastors amily upon death. Te church can paythe premiums on the policy, but only the premiumon the rst $50,000 is a tax-ree ringe benet. Tepastor should provide his own additional lie insur-

ance as needed, probably in the $500,000 range.

I recommend the plan begin as early as possible, witha minimum annual contribution o $2,400, build-ing to $6,000 as soon as possibleand even morei he starts the plan ater 40 years o age. A pastorshould not be in IRAs or Roth IRAs. He should bein a 403(b) pension plan, with the deposits made bythe church. Tis exempts the amount rom sel-em-ployment tax and makes the distributions eligible orhousing allowance upon his retirement, which wouldshelter the income rom ederal and state income

taxes.

bb J a n u a r y / F e b r u a r y 2 0 0 9 2009 Regular Baptist Press. All rights reserved. Used by permission.


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AverageC o m p e n s a t i o n

i n a B a p t i s t C h u r c hFull-Time Senior Pastor $79,855Full-Time Solo Pastor 54,456Full-Time Administrative Pastor 80,469Full-Time Associate Pastor 60,505Part-Time Associate Pastor 14,397Full-Time Christian Ed Pastor 61,509Full-Time Youth Pastor 52,043

Part-Time Youth Pastor 10,660Full-Time Childrens Pastor 50,887Full-Time Worship Pastor 66,588Full-Time Church Secretary 29,381Part-Time Church Secretary 12,059Full-Time Church Custodian 36,094Part-Time Church Custodian 7,108

Q.Is there any value in comparing yourchurch sta compensation to nationalaverages?

A.Yes, i your church needs to be chal-lenged to increase sta pay! Tese g-ures cant address your local economyand unique situation, but they are a re-minder that our pastors are worthy ohonor. We expect a pastor to entertainrequently in a well-kept home, travelto appointments in a reliable vehicle,and dress appropriately in publicallo which require careul stewardshipand appropriate pay.

From the 2009 Compensation Handbook orChurch Sta, based on a recent analysis o Baptistchurches in the United States. Te ull report also showshow church salaries vary according to size o churchincome, church attendance, geographical region, educa-tion, and years employed.

The confusing dual-status when pastors pay taxes

According to IRS tax law, pastors employed bychurches have a dual-status treatment in the InternalRevenue Code. Tis dual-status distinction can beconusing to congregations, who do not always under-stand why a pastor can be considered an employee (in-come tax reporting) and sel-employed (Social Securityreporting) at the same time.

For income tax reporting, pastors are to be treatedas employees [see common law rules in Reg. 31.3401(c)-1]. Te church is not requiredto withhold income taxor the dual-status pastor [see Sec. 3401(a) (9)]; this isoptional.

For Social Security and Medicare reporting, pas-tors are considered sel-employed[see Sec. 1402(a) (8)].Churches cannotwithhold FICA and Medicare taxesor their pastor. As a result, pastors receive a W-2 at theend o the tax year with boxes 3, 4, 5, and 6 let blankor with none entered in each space.

Pastors must careully plan throughout the year, orthey will be let with a signicant payment at the end othe tax year. Pastors have two options or paying.

A pastor can pay his sel-employment tax by1.the churchs withholding it as additional ederalincome tax; orA pastor can pay his sel-employment tax by2.quarterly payments using orm 1040-ES.

A bit of history: Prior to 1994, pastors were consid-ered sel-employed or income tax reporting. Ten acourt rul ing declared that a pastor is an employee andthereore the employer (church) must report earnings onForm W-2. Churches have generally incorporated thischange, but the distinction is sometimes lost on accoun-tants who do not have experience with the unique taxstatus o pastors. Even ater the court ruling, pastorscontinued their sel-employed status or Social Securityand Medicare taxes, adding to the conusion.

bJ a n u a r y / F e b r u a r y 2 0 0 9 2009 Regular Baptist Press. All rights reserved. Used by permission.


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The Pastor's Salary

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