If you operate a church or religious entity that provides a housing allowance to clergy (or any employee), the value of this fringe benefit may be subject to state tax. OnPay can help you account for this fringe benefit so withholdings and contributions are automatically calculated with each pay run.
What is clergy housing?
When a church or religious entity provides housing to its employees who are clergy (defined as a person ordained for religious duties), the value of this fringe benefit is still considered income, but is generally excluded from subject wages when calculating income tax. However, this income may still be subject to tax contributions, when paid as a housing allowance.
This benefit may be provided in one of two ways:
- Fringe: Housing allowance paid as wages
- Imputed: Provided living space that's owned or paid for by the religious entity
When is clergy housing subject to tax?
For religious entities who pay a housing allowance to clergy and other employees, this fringe benefit may be subject to employee withholding for state income tax., or more commonly, for contributions toward a state mandated Family and Medical Leave Insurance program (along with employer premium payments). OnPay allows you to add a "Clergy Housing Fringe" pay type for this allowance, which includes the amounts paid with this pay type in subject wages, for applicable tax contributions, without including it in subject wages for any other tax.
How to add a clergy housing pay type to an employee's pay
It's important to use the Clergy Housing Fringe pay type when paying a housing allowance to clergy in OnPay, so that tax withholdings and premiums are correctly calculated and paid. If you need to include the imputed value of provided housing, there's a pay type for that, too. We'll cover both in this section.
In OnPay, go to Payroll.
Find the clergy employee in the list, and click the edit pencil beside their pay in the "Wages" column.
If "Clergy Housing" doesn't appear in the "Pay Type" column for this employee, you'll need to add it. To do this, click Add/Order Pay Rows.
Click Add Row.
Search for "clergy" in the Pay Item menu.
There are two options for "Clergy Housing" for you to choose from: "Fringe", and "Imputed". While all clergy housing is a fringe benefit, at the top of this article, we outlined the two ways this benefit may be provided to the employee:
- Fringe: Including a housing allowance in their regular wages (subject to taxation)
- Imputed: Providing access to a living space that's owned or paid for by the religious entity (not subject to taxation)
Fringe benefit IS subject to taxation
If you're including a housing allowance in their regular wages, select Clergy Housing Fringe.
Imputed benefit IS NOT subject to taxation
If you're providing optional access to a living space that's owned or paid for by the religious entity, select Clergy Housing Imputed.
Recurring Amount
Both options will provide a field for you to enter the dollar value of this benefit under "Recurring Amount". If you chose "Clergy Housing Fringe" in the previous step, the amount you enter here will be included in subject wages for tax contribution calculations with each pay run. If you chose "Clergy Housing Imputed", the amount you enter here will not be included in subject wages when calculating tax.
IMPORTANT: THE AMOUNT YOU ENTER IS APPLIED WITH EACH PAY RUN
If you've determined a monthly value for this benefit, but your pay schedule is weekly, bi-weekly, or semi-monthly, you'll need to calculate what fraction of this monthly value should be calculated each pay period, and enter that amount. This can be adjusted anytime, including while processing a pay run.
Click Add to save this pay item for this employee.
Once added, the "Clergy Housing" pay type is listed at the bottom. You can rearrange and remove pay types in this list as needed. When you're finished adding the pay type, click Done.
You will now see the recurring amount you entered listed as "Other Earnings" under "Wages" for this employee with each pay run. You can click the edit pencil at any time to change or remove this amount.
You can also click the toggle to exclude/include this pay type from a pay run without removing it. This is especially helpful when processing an off-cycle or special pay run, like a bonus or reimbursement.
How to confirm this fringe benefit is being taxed correctly
If you wish to confirm this fringe pay is being taxed correctly during the pay run, click Preview Check.
Under "Withholding Taxes", look for the withholding tax that applies to clergy housing to confirm the subject wages include the fringe benefit amount. You can also see the amount withheld.
Our Tax Accuracy Guarantee
Bottom line: We take the accuracy of our payroll tax calculations very seriously — and our accuracy guarantee ensures we’ll always have your back.
However, because we file on your behalf using information provided by you, it's important that you provide and input accurate information about your company, its employees, and the states and districts in which they live and your business operates, including all IDs and tax rates. Our Tax Accuracy Guarantee picks up where you leave off by covering all our calculations, and the filings and payments we base on them.
In rare circumstances, OnPay may need additional information from you, or may request you take action in order for us to file and pay your taxes. If such information is requested by us, but never provided by you, any affected tax filings and payments will not be covered by our Tax Accuracy Guarantee.
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