 Hello everybody. Welcome to a partnership between TechSoup and QuickBooks Made Easy for Non-Profits. We do all kinds of webinars for them, but today's webinar, which is free, it's 90 minutes long, and it is, oh, hello Pastor Rick from Arizona. Oh, do you know him? Yeah. All right. All right. Cool. So this webinar is just for houses of worship and specifically how to deal with Pastor payroll. And now if you don't know me, I am a CPA and I run QuickBooks Made Easy for Non-Profits. And all we do at QuickBooks Made Easy for Non-Profits is teach non-profits how to use QuickBooks. I do other accounting type trainings just for non-profits, but I need somebody who knows just about houses of worship, and that's what Barbara is. So Barbara and I are both CPAs, but Barbara, I'll let you introduce yourself. Tell us a little bit about yourself. And you want to go ahead and share your deck. I'm not really sharing anything. And at this point, we're at 75 people on the call. So awesome. Welcome everybody. I am really excited. I have been in business for 30 years as an on-call controller. And a few years ago, I believe I had a calling after I worked for a small church in Casa Grande, Arizona. And I had this really heavy feeling that small churches needed what I know. And I am affectionately known in the QuickBooks Made Easy world as the church lady. Not the one from Saturday Night Live, but just from knowing what churches need. So I'm really excited to be here. I think Pastor Payroll is probably one of the most confusing topics that the churches need to face when it comes to payroll. So I'm really excited that you're all on the call. And I look forward to having a really fun day with you. Does everybody see my screen over here? Yeah. If you see the screen, let me know in the chat. Make sure that put it in the chat. Yes, we see the screen. Okay. And there's a little slide to show them how to make it bigger. A little zoom slide in the deck. Yeah. So to make yours, go ahead. Do you want to go ahead? Yeah. If you roll your mouse around the screen, you'll see this little view thing that's in red up there at the top. And then if you push that, you'll be able to push something that says full screen. And it'll make the screen full. You'll no longer see the chat, but you'll be able to see the full screen. Okay. And then you can go back down again if you want to see the chat. We are going to break. I believe in breaks. I don't think, I think it's crazy to think you're going to listen to us for 90 minutes. So we're going to break in about 40 minutes. We're going to break. So that means that between now and when we break in 40 minutes, you will hopefully will have your undivided attention. So don't be looking at your phone. Don't be doing the chat. Don't be like, you can chat us, but don't text. Don't use Facebook. Don't go to the bathroom. Don't talk to anybody because we'll be able to do all that in 40 minutes. And even though this is free, it's incredibly valuable information. So all right, Barbara. Okay. Do you want to mention these things yet? Yeah. Yeah, just real quickly. And I'll bring it up at the end. But QuickBooks made easy. We teach nonprofits and houses of worship how to use QuickBooks. And Barbara with me has created a couple of training products. And we also have a training webinar that's just for nonprofits. I'm sorry, just for houses of worship using QuickBooks. So I think if you go to the next slide, the one after that. Yeah. So this is our two day webinar series. And I'll bring it up again. But if you're using QuickBooks in your house of worship, that's the exact thing that it's for. We're doing it for desktop users and online users. But let's move past that. And then the next slide, we also have discounts on a training product that's on demand streamer rules. You can have it whenever you want. And we also sell tech support agreements just to houses of worship. So but anyway, we'll talk about that at the end. So Barbara, just go for it. So what's our agenda? All right. So our agenda for today, obviously, we're talking about pastor payroll. We're going to talk first about classification of workers, all workers in houses of worship. And I'll tell you why that's important. And just a second, we're going to talk about who can be a pastor, talk about this term that you might have heard called the dual status. What does that mean? We're going to talk about housing allowances and how to calculate those. We're going to talk about how to report pastor compensation, options for pastors to pay their taxes. And also, we're going to talk about the option for opting out of SE taxes. So we're going to have a lot to cover. And I talked fast anyway. So hopefully, we'll just you'll feel like you've got so much information at the end of this, I hope that you feel like it's been a really worthwhile use of your time. So let's go ahead. Real quick, just to put in this to bed, there's a couple questions. So a couple people have been asking. So I'll just tell you everybody look at the screen. Yes, you will get this deck. It will be given to you. So you will have that handout. And yes, you will also get the recording. So you will get that all right within two days. So don't have to worry about that. All right, go for it. Perfect. Yep, you bet. All right. So we're going to start with the first of all, classification of workers. I know you're probably thinking, Hey, I came here just to learn about pastor payroll. But knowing how we classify workers in our houses of worship is going to be foundational to understanding the concept of dual status. So I want to go through that really quickly. There are basically two classifications of workers. Either you have an employee, or you have an independent contractor. An employee is employed by the House of Worship. So H-O-W means House of Worship, whereas an independent contractor is actually considered self-employed in their own trader business. And just so you know, we're talking right now, we're not talking about pastors. We're talking about every person who works for your house of worship, including you. All right, go for it. Perfect. Yes. So generally, when you have an employee, you have some kind of an employment agreement with an independent contractor. You might have some kind of a contractual agreement. The House of Worship for an employee controls the schedule of the employee. An independent contractor controls their own schedule. They're the ones with their own calendar. As an employee, the House of Worship is there to train and supervise the work. An independent contractor actually generally works without any supervision whatsoever. An employee of a House of Worship, the House of Worship will provide the space, the equipment, the tools that that employee needs to do their job, whereas an independent contractor uses their own equipment. They use their own computer and generally their own space and their own tools. An employee of a House of Worship generally gets reimbursed for expenses, right? If they need to go out and get paper or ink for their printer, the House of Worship is going to reimburse them. Independent contractors are responsible for their own expenses. They have actually, because they're in a trade or business, they have the potential for a profit or loss. That's another key indicator that they are, in fact, independent. With an employee, a House of Worship determines the pay rates and the pay schedule. With an independent contractor, the independent contractor controls their billing rate, and they need to bill or send an invoice to that House of Worship for the work performed in order to get paid. Finally, the House of Worship provides benefits, including workers comp for an employee. An independent contractor, the independent contractor is responsible for work comp and their own liability coverage, which is key here because if you have an independent contractor, you should make sure that they're covering themselves for work comp so that the church or the House of Worship is not responsible if something were to happen and they would get hurt while they are working at your location at your House of Worship. These are important to know because we have to know the difference between employees and independent contractors. It really comes down to three determining factors, but one key word and that's control. Who controls the financial relationship? In other words, the pay that the person is going to get. Who controls the time and the supervision that that person is going to be working? Do you tell the person when to show up and when they can leave? The perceived relationship? If I was to come in and ask, if I was to come in and ask your accountant and I said, hey, who do you work for? They would probably say, I work for myself. I have my own accounting firm. You talk to the bookkeeper in the church. They say, I work for the church. It's how do they perceive that they work for you? This is key and again, it's foundational to what we're going to move on to. When we're reporting compensation, employees, we give them a W2, right? Independent contractors or non-employees get a 1099 NEC. NEC by the way stands for non-employee compensation and I will just say one of the pet peeves that I have is that people say to me, oh, they're a 1099 employee. There is no such thing as a 1099 employee. They are either a 1099 NEC non-employee independent contractor or they are an employee and they get a W2. So important that you're not mixing those because there's no such thing as a 1099 employee, either W2s or they're 1099s. Yeah, and the W2s in general, they're the ones that we withhold on and the 1099s are the ones that we don't. And now Susan brings up a point that a lot of people that are workers are volunteering. So they don't get either because they're not being paid, but I think it's important to acknowledge that a lot of people that are that are actually volunteering their time. Yeah, that's actually that's a really good point because when it comes to volunteers, they're technically, I guess you would consider them a non-paid employee because for a volunteer, the house of worship needs to be thinking about what if what happens if this person slips and falls, right? So they need to have liability insurance. On the flip side to that, you also as a volunteer, you kind of control some things about your own schedule like you can literally go, well, I'm not going to come in today. I'm a volunteer. You can't really control me. So in that case, they sort of like move over to the independent contractor side. And there's some things about doing background checks about volunteers that you need to be really careful about that. You need to get permission to do a background check, but we would want to do background checks, right, on a volunteer because we want them to we want to know what kind of people we're bringing into let's say our nursery to watch our children and that kind of thing. So again, I would say that they tend to be more like a non-paid employee and they should be treated like that. Michelle just mentioned some volunteers, they need to be reimbursed for their materials. Yes, you're right. Those do not go on a 1099. They are not contractors. They're simply being reimbursed for materials spent. And Shunika wanted you to say something about part-time versus full-time employees. Both part and full-time employees go on W2s. Is there something else that you feel like we need to say about that Barbara? Well, I think what's really important there is a part-time employee cannot be paid salary because that's one thing that I see that people say, oh, well, they're a part-time employee, but I'm going to pay them a flat amount. They're technically always have to be hourly. You can restrict their number of hours. You can say, I'm only going to pay you for 20 hours, but then you need to have that part-time person then only work 20 hours. So be careful about that because I do see that in payroll where they'll say, oh, that's a person's salary, but if you divide it out by 2,080 hours, which is 52 weeks at 40 hours a week, they would be making half pay, right? And they wouldn't even be making minimum wage. So be careful about that. So I'm going to have us move on because I want to make sure we get to what the main point is, which is after payroll, but Jessica and Rick and the Cathedral, we will get to you, I promise. Okay, all right. Perfect. Thanks. Okay, so let's talk about who can be considered a pastor? So first of all, they have to be licensed, commissioned, or ordained as a minister. So be careful about that too. Like, you can't just go, oh, well, you know, he's doing this thing. He's doing what a pastor would do in our house of worship. If he's not licensed, he or she is not licensed, commissioned, or ordained as a minister, then they cannot be considered a pastor. They are considered a common law employee of a religious, of a religious body. And they're employed for the purpose of providing ministerial services. And we talk about ministerial, ministerial services, we're talking about the administration of sacri-dotal functions. So sacraments, they're going to do your communion or your mass or baptism. In some organizations, your marriage is considered a sacrament. So they're doing the administration of that. They're conducting the religious worship, or they could control, conduct, and maintain the organization. So you could have a pastor of administration, as long as they're licensed, commissioned, or ordained, and they're considered a common law employee of a religious body. All right. So we talked about classification, we talked about who can be a pastor. So let's talk about this kind of odd terminology called a dual status. So a dual status means that the pastor is considered an employee for federal and state income tax purposes, but they have the status of being self-employed for social security and Medicare purposes. So how crazy is that, right? So I have a question for you. Which form do you think that a pastor should receive? Oh, and I think I have it on a poll, too. Yeah. Okay. That'd be perfect. Thank you. Let me, oh, well, you know what? I don't have access to the poll. Aretha, can you give me access? Can you upgrade me so I have access to the polls? Oh, she's doing it. Okay. Awesome. Okay. So let's see. What is the roll? Oh, this is, oh, what is the roll? No, we need to close that poll. That's not the poll. Up the next one. If not, she might have put it in the chat. Yeah, just answer in the chat. Oh, there we go. Oh, I have the poll. So this one, which form should the pastor receive? A W2, a 1099 non-employee compensation, both W2 or salary, a 1099 for housing. Either one will work or no clue. Which one do you think? Go ahead and answer, even if you've answered in the poll, if you could just click your button over here. Which one do you think that we should have? I'm curious where we are. Okay. So perfect. You're exactly right. All pastors need to get a W2. Okay. So excellent. Almost 80% of you said that. And it seems like both would be a good answer, right? We just said we're dual status, but in reality, you're exactly right. Everything is reported on the W2 and they are, that's the form that you're always going to use. Okay. Good. Thank you. Perfect. I'm just hammering it home. Yeah. Pastors get a W2. No, they do not get a 1099 under any circumstance. If you're giving them a 1099, doing it wrong. Okay. Go ahead. Awesome. Thank you. I love that. All right. Let's go to the next thing. And this is another area that seems to cause a lot of confusion. So we're going to talk about housing allowances. Okay. So in, but I want you to think about when you're thinking about pastor compensation, I want you to think about their compensation as a pie and housing allowance is really just a piece of the whole pie. So if you say, well, I'm going to pay my pastor $60,000, then a portion of that compensation can be separated out for tax purposes as housing. This is important because I actually had one pastor and you'll see the pastor was actually doing the payroll, which is interesting anyway, but he moved to a different house and he got his housing allowance approved and the housing was more expensive. So he changed in the payroll system. He changed his housing allowance, but really all that he was supposed to be doing was taking a bigger piece of the pie and the salary portion was supposed to be less. But instead, what he did was essentially gave himself a raise. And so we have to be careful when somebody says, I'm going to, I'm going to a new approval for a new housing allowance, that if you think about the pastor compensation as a pie and housing is just a piece of the pie, it's going to be easier for you to wrap your head around the fact that if somebody, if a pastor comes to you and says, hey, I'm moving into a new home or, and then I want approval for a higher housing allowance, a higher portion of my compensation to be housing, then you want to make sure that you're not actually giving that person a raise. You're actually just reducing the size of the salary piece. Okay. You know, that's happened to me too, without some worship. It's funny that you say that. Is there anybody else that that's happened to you where they, you know, you inadvertently gave the pastor a raise because you, you know, they just, they moved and they decided they want more housing allowance, but the board never really voted on whether or not they should get a raise. Does that ever happen to anybody else? Because it's definitely happened to me. Well, and even if, and even if they, the board did approve the housing allowance, it's important that when you go back to, whether you're doing payroll or you're have an outside service doing payroll that you go back and say, I want to increase the housing allowance, let's say by $150, but that also means you have to decrease the salary portion. Okay. Unless they decide that they're giving them a raise, but it's just that it's something that needs to be discussed, doesn't it? It needs to be, was our intention here just because dude moved to a more expensive house, we're going to give him a raise. I thought we're giving raises when we want to give a raise, not because, you know, she moved to a new house. You know, anyway, all right, okay, go ahead. Perfect. Okay. So when it comes to pastor compensation, I'm going to talk a little bit about taxes and we'll get more and more into this. So just be patient. So when you're thinking about the pie, the salary portion is going to be included in income for income tax and self-employment tax purposes. The housing portion, that piece of the pie is going to be excluded for federal income tax and most states, but not all Pennsylvania, I believe is one of them, where you actually are, the pastor is taxed on the housing, but it is subject to self-employment tax is really important. Okay. And then benefits may be taxable for both income tax and SE tax. And in a sense, they actually are just part of compensation. And we're going to talk about what's included in compensation coming up. But I do want to mention that because I also see houses of worship giving benefits to their pastor that they think, well, they shouldn't necessarily be taxable, but they really are. So we're going to talk about that in an upcoming slide, but just keep that in mind. When you're when you're dealing with benefits, they may be taxable for both income tax and self-employment tax. So let's talk about taxes. There are actually four, basically four types of taxes that every employee pays, right? You know them as federal income tax, state income tax, social security tax, and Medicare tax. Generally, a regular employee is going to have all of these things withheld from their paycheck, right? And they don't have to worry about any of that because their social security and Medicare, which by the way might be called FICA, you probably have heard that term. The employer takes care of all of that. But that's not the situation with pastors. Pastors are under a different reporting requirement. And that is that they pay SE tax. You might have heard SECA is another that that's a self-employment portion that's the equivalent to FICA taxes. But in reality, what that is, what SE tax is, is the pastor is going to pay not only their social security, the social security and Medicare that the House of Worship would have withheld from a typical employee, but they're also going to pay the employer match. So they're actually responsible for both sides of social security and Medicare. So we're going to talk about that too. So don't get ahead of me, but we will talk about that as well. I'll just say that real quick just to make sure for those of you that don't know. So like Barbara said, there's federal, state, social security and Medicare tax. The social security and Medicare tax, if you add them together, well, it's 15.3% of wages. And everyone in this country, when you make money, you're paying 15.3% into the government, okay? 12.4 goes to social security, 2.9 goes to Medicare. If you work from someone else, if you work for somebody else, you pay half, it's taken right off your W-2, your employer matches it. If you work for yourself, like an independent contractor does, you pay both shares and it's called self-employment tax, all right? Pastors, even though they go on a W-2 like they're an employee, when it comes to social security, they don't have it withheld. They pay it through self-employment tax like independent contractors do, okay? So they're kind of employees, kind of independent contractors. Perfect. Thank you. Yes, thank you for the clarification. That was great. Okay, so let's talk a little bit more about how do we determine a housing allowance? So, well, first of all, let me just read this. This is straight from the IRS. It says, a minister's housing allowance, sometimes called a personage allowance or a rental allowance, is excludable from gross income for income tax purposes, but not excludable for self-employment tax purposes. So the point is that the housing allowance, you're not going to pay federal and in most state-state income tax, but it is going to be subject to that SE or self-employment tax, okay? All right, so let's talk about how do we calculate how much can we, how big of a piece of pie can we give to our pastor as a housing allowance? And Pat, I want you to listen to this in particular. Pat has a question. Pat has someone that just gets a housing allowance of 20,000 and doesn't get a W-2 at all, or they don't get any wages. Only thing they're compensated on is their housing allowance. So that's probably a problem. But anyway, go ahead. Yeah, we'll talk about that. So we're going to talk about the lesser of three. This is really key because I was teaching this to another group and there were a few light bulbs that went on. They said, I had no idea that there was a lesser of three requirements. So I want you to really grasp this. The first way that we can determine a housing allowance is based on actual expenses. And when we're talking about actual expenses, we're talking about the mortgage principle and interest, the real estate taxes, homeowners insurance, the HOA fees, utilities, repairs, yard maintenance, but not cleaning your house, by the way, by furniture appliances, even a down payment in the year of purchase. Wow, that's a lot of expenses that seem like they can be housing allowance. But remember, it's the lesser of three because the next thing that we're going to look at is fair rental value. So this is if it was a furnished home plus utilities. So what would your home, if you were to rent it, furnished plus the utilities, is that amount more or less than your actual expenses? And then finally, board designated. So your board may say that we're only going to give a certain amount for housing allowance. That's not very common, I would say. But some would say, some boards would say, we just don't think it's being very good, you're being a very good steward if 100% of your compensation is going to pay for your housing. And so we're only going to give you a percentage, kind of like going and getting a mortgage right from a bank, where they're saying, yeah, we're not going to give you, if you're only making $20,000, we're not going to give you a mortgage that the payment on that mortgage is $20,000 a year. They're going to go, no, it's got to be around 35% of your total income. However, the board has to really think about that because if the board knows that pastor is married or maybe that pastor has an additional job outside of the church, all of that needs to be taken into consideration. So just know though that you actually can have three different parameters to look at when you're looking at the lesser of three when determining that how big that piece of a pie is going to be. So one of the best things that you can do is create a housing allowance worksheet. Allow the pastor to fill in what they're estimating to be their actual expenses. And then how are you going to get the other two? Well, the board designated that one's pretty easy because if the board says, hey, we're only going to approve up to a certain percentage or we're only going to approve a certain amount, they can plug that number in. But the fair rental value or this fair market value of that home really requires that somebody on the board takes the time to do a little research to say, okay, this is a 2,000 square foot home in this community. And are there any rentals out there furnished plus utilities to come up with a number that seems reasonable or fair in comparison to what the pastor is asking for? Okay. And then you look at the three, which one is the lesser of, the lesser of three, which of these is the least amount? Circle it. Let's say that it is the actual amount. And then you have the board sign and date that worksheet. And that becomes the housing allowance that becomes approved. I just think I actually created this for my good Stuart Church Academy. I founded that a few years ago. And they loved this because they could take that and actually go through this with their board, with the pastor, and it's in compliance with what we're teaching here today. So Carol says, and Carol, I'm just going to read this for people. She's agreeing with you. She's saying the board can improve any amount to pay, but the minister can only shelter the lesser of three on the minister's tax return. So I think what she's saying is, say you have a board that's just like, well, this is what your compensation is going to be. And then based on the lesser of three, we got to figure out what the housing allowance is. Now, one thing I would add, Carol, is that as a board, as a house of worship, you can't just leave it up to the minister to determine the housing allowance. You need to be in the game here, because as we'll see in a minute, the compensation, the salary is reported in one way. And the housing allowance is reported in a different way on the forms you give him on the W2. So if you don't know how they're splitting it, that's a problem. So you have to get in the dirt with them. And yes, Daryl, we're going to send you a copy of this worksheet that Barbara made. Okay. Perfect. All right. Okay, so a couple of reminders about housing allowances. The first is that the housing allowances must be formally designated and recorded in advance. And secondly, they may not be established and changed retroactively. So if you bring a pastor on, let's say in March, and the worksheet isn't filled out, and a payroll goes by, they can't go backwards. You can't go back and go, oh, well, my actual expenses were higher than I thought they were. So can I just have you change and go back and change my salary and my housing allowance split all the way back to January? And here we're in October? No, can't do that. So it's always established. It's always, once it's determined and approved, it's always on the next paycheck that you can make those changes. Yeah. So somebody was even saying here, Bruce was referring to somebody else and he was like, yeah, it's more problematic if there is a retroactive housing allowance. And it's like, we actually can't have retroactive housing allowance. Exactly. Yeah. If they haven't filled out the form, if the board hasn't approved it, nothing gets changed until that happens. So which is a good reason to have that worksheet and the signing and the dating of that and make it part of your bringing on a new pastor procedure to make sure that all of these things happen, just like you need to get a W4 and a 99 for a pastor, you're going to have a housing allowance worksheet. So good. So going back to I do want to say just one more thing just to make sure, because this is important about what she's about to say. So I just want to make sure you understand there's federal income tax, there's state income tax, and then there's that self-employment tax. The salaries are subject to both. The housing allowance can be excluded from income tax, but it's still subject to self-employment tax. Now, if you have questions about how we report it or how they pay it, we're going to get to that later. Right now, just understand housing allowances can be excluded from income tax. All right. Except and then she's going to show you the exception. All right. All right. Thank you. Yeah. So what we're talking about here is, okay, so the pastor has filled out the form, the board has approved it, everything's rolling along just fine, and then everybody thinks the housing allowance is perfectly done, but there are exceptions to whether you can actually have a housing allowance for that full amount. So this is straight off the IRS website, and this is exactly how it reads. It says, if your housing allowance exceeds the lesser of these three things, one, if it's not reasonable, right? If you live in the if it's not reasonable compensation for the type of position that you have, that's going to be an exception. If the fair rental value of the home is less than the housing exclusion and or if your actual expenses that directly relate to providing the home, if you exceed, if your allowance exceeds your actual expenses, then you must include the amount of the excess in income. So what a lot of pastors will do is they will go through and they're going to estimate how much their utilities are and their various things that we talked about as far as their actual expenses. And then even to the point that their tax advisor might even say to them, we'll just buffer that up a little bit, you know, buffer it up by 10% so that just in case you have some extra expenses that happen that you are that that you're covered. Well, let's say those extra expenses don't happen. Now you've taken out more housing allowance, you've made the pie the piece of the pie bigger than your actual expenses. And we're assuming that your actual expenses are actually less than the fair rental value, right? And but that excess needs to be added to the pastor's income for income tax purposes. So then the question comes up, well, how's that pastor going to know that? So one suggestion would be have your housing allowance and in most cases you can do this through any of your payroll companies have your housing allowance portion put it into a totally separate account, like a like a second checking account, and then pay all of your housing, qualified housing expenses out of that account. If you have money left over at the end of the year, that's the amount that is going to be an exception. That's the amount that's in excess of your actual expenses. That's one way to do it. Another question that comes up is the person doing the payroll or reporting the payroll doesn't do I need to find that out from the pastor at the end of the year? And the answer to that is actually no, that is the pastor's responsibility to first determine whether they whether their housing allowance exceeded the actual amount and to report any excess housing allowance on their own personal tax return. So I want to, Lisa said that account is brilliant, by the way. Just I wanted to point out here, we were talking about the housing allowance, and there are you do the lesser of three to determine what the housing allowance is. And then Barbara just gave an example of if it turns out that the lesser of three and what you're going to go with is the actual expenses. But then what then you just gave them money and you didn't you didn't it turns out you gave them more than the expenses were, then you're then there that's the problem. But again, you don't have to worry about it. They just have to report it when they do their their do their texture. But if you have these other people that are just paying, they've decided that they're just going to go with the fair rental value of the home. Then I guess unless they inflated the fair rental value of the home, there probably wouldn't be a problem. It's so they check at the end of the year. Right. I see. Okay. All right. I got it. I got it. Cool. All right. And I'm saving these questions, by the way, that people are sending so that I can when you get to a point where it makes sense to stop, we can do the question. Perfect. Actually, this is probably a good place to take a break because we're going to move on to a new topic. Oh, okay. And let me just go tell you what we're going to talk next about is actually reporting past our compensation. So do you want to take a five minute break? Let's do the questions real quick and then we'll take a five minute break because I know these people are asking. So let's see. Okay. So I'll wait on that. This was a random question. How do churches access the background database? I'm not sure what that even means. So in terms, I'm thinking that maybe they're asking about the fair rental value. One of the best ways to do that is call up a realtor or a property manager and in your community and say, Hey, I'm looking for a 2000s square foot home that's furnished. And, you know, I'm just curious, what would my rental value be, right? What would my rental, what rent be? So that would be one way to do it. Usually there's somebody in the church that's actually a realtor and can probably do that for you and would probably do it as volunteer. Does the self-employment tax only apply in the case of the pastor if he filed self-employment tax? And what we've learned is that the pastors, I mean, unless they opt out of doing self-employment tax, which we're going to get to, then yeah, they absolutely self-employment tax always applies. All right. Okay. Our non-profit is a 501C3 mission agency. Two of the employees are also ordained ministers. They do not provide any sacro, sacri-dotal functions. They just administered the mission agency. Should they be classified as a minister for reporting purposes? Yeah. So that's a great question. I have had, I've gotten actually answers that, yeah, they can still be, if they, they can still be considered a pastor if the mission organization is under the, is like a sister organization to an actual church and they're, when they're going out in the mission field, they're actually doing some of those sacri-dotal duties or performing the religious services. But other than that, if it's a completely separate organization, they really should not be paid as a pastor. And that the housing allowances would not be applicable at all. Right. So that if, if they're not doing any sacri-dotal functions, which is what this person said, then forget about it. All right. They're just like everybody else. They're an employee. So Pat, I think you got your question answered. And that was a different thing. Almost done here. Does the housing allowance need to be approved by the board before January 1st or can it be updated at fiscal year? Oh, yeah. When do they have to have the housing allowance approved? So that's actually a great question. It doesn't, most of the time the, you know, they'll kind of review your pastor will probably be reviewing their housing allowance in comparison to their taxes. But technically, it doesn't have to be done at any particular time, because remember, we're just dealing with how big of my pie is going to be housing, how big of my pie is going to be salary. And that can happen at any time during the year. And it doesn't affect the church's share of payroll taxes. So it has nothing to do with the budget either. So the pastor could change it every month or every six months if they're in a short-term lease, for example. Hopefully that's not happening. It's just that they have to approve it. They just have to approve it. Right. Just has to be approved. Yeah. Okay. If a church provides the pastor a house with all the expenses are paid, so the pastor doesn't actually pay any expenses, then is the housing allowance equal to the fair market value of the housing? I think so. Yeah. So the housing allowance is the fair market value of that personage or that whole that the church is providing. And if the church is paying for all of those expenses related to that personage, then the utilities and everything ends up being additional income that's considered basically an in-kind housing allowance, where you're not getting the cash to pay for your own home, but you're getting the value of that home as compensation. I was just thinking that in terms of the room of three, the lesser of three, technically the pastor's expenses are zero, but we're talking about, I guess, should be comparing the expenses that were paid on behalf of the pastor to the fair rental value. Whenever one's less, that's the one you'd go with. That would be the lesser of three, the third being if the board decided a percentage. And then this was the other question. This is just asking it again, if you give the pastor a free personage as part of its compensation along with the utilities, that's the same question, isn't it? Yeah. So it's not free. They still have to report that they received a value of the house that they're living. Yeah. And then, yes, Susan, we are going to talk about how to record in QuickBooks. So let's go ahead and take a five-minute break. That's great. Debbie is saying she realizes she's been doing everything wrong. So, yeah, I would probably just start fresh in January of 2023. You know what? In January of 2023, you could probably issue a W-2 for 2022, Debbie. You could probably do that. All right, cool. So most people are back. Yeah. And it looks like most people just have a few, but 17% have a bunch. Awesome. Okay. Well, we're going to mention that in our next section, but that's good to know. So thank you for that. All right. We are moving on into how do you actually report pastor compensation. But before we do a couple of questions that I saw, I think it was Shanika. I don't know if I said that right. You asked about, you were a little confused on the FICA. So a typical employee has half of that FICA with health, so scary Medicare was withheld, and then the employer matches it. That's the exact same way that is handled in the church. So, yeah. So it's not, they pay in, the church pays in, the full 15.3%, but they got half of it out of the employee's paycheck as a withholding. Carol, you asked about IRS regulations and a publication for that. I will give you that at the end. Professor Quick, thank you for telling us that that's a good thing to take a break. And Mike, you asked the question, if they're employees, why don't they have, why are we doing it this way? And that is a really good question. The IRS loves to make things difficult, but the primary reason is to save taxes, that the pastor is actually saving taxes. They in a sense get to double dip on their housing. The housing allowance is not subject to federal income tax, yet they can still take a deduction for their mortgage interest on their personal tax return. A few years ago, there was a group called Freedom Against Religion and they tried to fight that really big and they lost. And so that housing allowance has been retained, but that was a big part of it is that why should pastors have this preferential treatment and not have to pay federal income tax on their housing allowance? So great question, but that's the primary reason. Okay, so I think those are the main ones that I got. So let's go ahead and move on to how do we report pastor compensation? So we're going to look at the form W2 because all pastors compensation needs to be on a form W2, right? We talked about that. So in box one is going to be the pastor's total compensation, not including housing allowance. And I specifically worded it as total compensation rather than salary, because you may have benefits that are also taxable. So we're going to talk about that in a second. But so box one, total compensation, but not the housing allowance, not that piece of the pie. Boxes three, four, five, and six should either be left blank or show zero for pastors. So box three is your social security wages. Box four is your Medicare wages. And of course, since those are not taxable for FICA tax purposes, there's going to be no social security withheld, and no Medicare tax withheld. Okay. I just want to I want to I think this might be a good time to because Mike had asked, you know, why do pastors pay as E tax when they are employees of the church? Like in other words, why can't we have on the things that they have to pay self employment tax on like the compensation and the housing allowance? Why can't we just have the withholding right in the social security boxes there and let the let the church take care of that like they do for the other employees because they are going to be paying essentially social security Medicare. So why do we not do it on the W2? Why do we have them pay it separately? Why is that? Yeah, so if you don't if you if you pay them like any other employee, then they are not entitled to that housing allowance. That's the whole reason. Okay, that negates that housing allowance exemption from all that housing allowance that needs to be in box one. They gave you something and they took it away because they took something else away because what they said was your compensation, the housing allowance portion you don't have to pay income tax on but you have to pay both shares of FICA on everything, right? Because if they if they did it like Mike was saying, let's just put social security on there, then you'd probably be matching half of it. So it's kind of like you pay more in social security and Medicare wages unless you opt out, which is coming up, but you pay less in income tax because, you know, you don't have to pay income tax on your compensation. Yeah, let's think about that. You wouldn't pay seven allowance. Sorry. I said it wrong. You wouldn't pay tax on your housing allowance. Okay, go ahead. Correct. Yes, sorry. The if you think about it too, if you depending on your federal tax rate, right, you could be anywhere from let's say 15 to 30 percent for income tax purposes, but for but for SE tax purposes, the 7.65 you were going to pay anyway. So you're really only paying 7.65 on that entire housing allowance. So and you know, and your other option is say, okay, I just don't want to be considered a pastor and I won't take that housing allowance. But that that doesn't seem like a very smart thing to do financially for the pastor. And you're just by the way, when we get to the whole tax thing, I'm not going to spend a lot of time, but there's a little benefit that you may not know about. So it's not really even as bad as 7.65 percent. So hold tight on that and we'll talk about that. Okay, so again, box one, total compensation box three, four, five and six should be blank or say zero. And in box 14, that's where we're going to put the housing allowance. This is informational only, but it's important to give your pastor the amount that you had given a paid him for the housing allowance, because remember, it's up to the pastor to figure out if he has more housing allowance or she has more housing allowance than their the actual expenses. So they need that number in order to make that determination. And then the last thing is box 16. Generally, the amount in box 16, which is your state income tax is generally the same as box one, unless your housing allowance is taxable in your state. And I'm pretty sure Pennsylvania, it is taxable. So they would actually need to add the box one plus the box 14. And that would equal your box 16. But most states, I would say are are not taxable. Wow, is there anybody from Pennsylvania here? Do you know whether or not if you're from Pennsylvania that housing allowances are actually taxable in the state of Pennsylvania? Yep. Carol says yep. Yep. That's what I thought. Okay, perfect. So what are we going to include in box one of the w two? This is this is where we're going to talk about that total compensation for purposes of box one, okay, on the w two. So salary and bonuses, that's logical, right? The so again, the piece of the pie that we're calling salary, cash and gift cards. If you any time we give a cash equivalent, and this is true, whether you're a pastor or an employee, any time we give a cash or gift card to an employee that's considered taxable, reimbursed FICA or reimbursed personal insurance. And I want to touch on this because I see this in a lot of houses of worship. Karen, Karen, I hope you're listening. This is exactly the question you asked. Oh, good, good. Perfect. So a lot of houses of worship will say, Well, that's not really fair. We would have paid the 7.65 for every other employee. So we're just going to reimburse. We're going to calculate what that 7.65% is. And we're going to reimburse our pastor for our share of the FICA. Guess what that needs to be added to box one, because it's not a reimbursement of business expenses is actually giving them personal income. Same thing with personal insurance. I have a pastor that sort of aged out of the health insurance. He had now he and his wife actually are both employed by the church, and they were now on Medicare. And so he goes, Hey, I'm not going to be on the health insurance anymore, because I can get Medicare. But could you reimburse me for my personal insurance box one income? Okay, so any kind of reimbursement that is for personal expenses like a personal insurance is taxable in box one, non accountable allowances, another big area that I see. They'll say, we're just going to give our pastor $300, either a paycheck or a month for a car allowance. But you don't have to tell us what you drove for church purposes. Any non accountable allowance, any non accountable allowance where they don't have to tell you what they spent the money on is box one income on a rarer. So a lot of times houses of worship will pay or have their prisoner pay even for the performance of a sacerdotal duty or for a wedding. So the pastor gets paid as normal or her normal compensation. And then, oh, they did a wedding this week, and they either get that from the bride and groom or the church pays them an extra on a rary, let's say of $200. And that needs to be added to box one. Okay. Any time we're adding income to the pastor, it doesn't go on to 1099. It gets added to box one income. Just know that too. Let me add this to because somebody had asked, this is Lisa, a required pension contribution at 18% to a third party. How would you handle that? So they're basically putting their, the church is giving extra money to their retirement plan. Is that considered income? Yeah, so that's a good question. So if you are putting money into a retirement plan that is not your house of worship group qualified 401k 403 b simple IRA, it's a completely separate account that is 100% box one income. And they shouldn't and keep in mind that that's not even considered tax deferred money either because you're putting money into an account that's not your qualified account. I had that happen in a small church as well. They're like, well, they came in, he said he already has an account, we're just going to put that money in. Well, that money is actually taxable to him now. And it's going to come out as taxable if he's putting it into his old retirement plan. So you got to be really careful about that. That is really messy for the pastor. Couple of questions on the honor area. These are just people kind of highlighting. And you'll appreciate this because of your next topic, but the honor area in box one only if it's paid by the church. And then this other person that's called operations admin if the honor area is giving them directly from an individual, how we would, how we would, how would we track that? And will we be responsible to report it? The answer is no, you don't track that at all. These are just gifts. You know, so if they give it to the church, and then the church gives it to the pastor. Well, the reason why they're giving it to the church for one is so they can write it off under taxes, but now it becomes money that is part of the compensation of the pastor. Whereas if I just walked up to the pastor and gave him money, that's just me giving him money. That's like, you know, when I drive down the road and give somebody money that's, you know, asking for money on the side of the road. So right. And if the if if that pastor goes to another house of worship as a guest pastor, and they pay an honorarium that that does get reported if it's more than if he makes more than $600 there, he's going to get a 1099 from that other church. We're talking about, I guess, in internal extra money. Basically, if they get money from something that's not the church, either it's an individual that's in your church, or it's an individual that's not in your church, or it's a church that's not your church, not your problem. Okay. It's the stuff that's coming from your church. Yep. Yep. And then the final one is, and this is this is important because in a lot of houses of worship, pastor appreciation month is in October. So this is perfect timing to understand this. Pastor appreciation, love offerings, specific collections that you take for that purpose, taxable part of your box one income. So what happens here and again, to Greg's point, if you say, hey, it's pastor appreciation month, let's show our pastor our love. And the person sends, you know, a $20 bill and a card and says, thank you for your service. You don't have to worry about that. But if the person writes a check and says for pastor appreciation for $20, now we have to deal with that in the church. And one of the ways that you can deal with that is by creating what I call a designated fund. And the designated fund idea is that we're going to set this money aside and put it into what I call a fund bucket. And so the money is going to come into this designated fund called love offerings. And then it's going to once we accumulate the amount that needs to get paid to our pastor, it's going to go out of that bucket and to the pastor. So this is a great place to use designated funds. And that was why we asked the question, you know, do you have designated funds? So if you do have it looks like most of you have a few, this would be a great place to use that designated funds. It's kind of like the money comes in and the money goes back out and we go into a whole training on this in our house of worship training, QuickBooks for house of worship training. Yeah, remember, we were talking about there is training coming up next month. And we're going to it's it's a it's a training just for houses of worship. We're going to do it once for people using QuickBooks desktop. And again, for people using QuickBooks online. And we're going to go through everything you need to know about using QuickBooks for a house of worship. But a big piece of that is how to deal with these funds. Okay. So I've also been called to task by three or four people who are saying, if you go to another church and you get an honorarium from that other church, it's not a gift. If they say we're going to give you an honorarium because you did this, that's a fee for a service, you should get a $299 if it's over $600. And the pastor has to report that on their taxes. I totally agree. If I said that whenever you get money from a honorarium from another church, it's a gift. No, it could be if you didn't charge a fee and they just gave you something at the end, that'd be one thing. But if it was agreed upon what the fee was going to be at the beginning, then yes, it's taxable to them. My point was, the money came from another church, so it's just not relevant to your church. For your house of worship, you don't have to add it to their W2, but you are exactly right. If that amount wasn't $600, it is still the pastor's responsibility to record that as income. Even if it's not reported to the IRS, they're supposed to pick that up as income for services rendered. So that is true. Yep. What if the funds, pastor appreciation are used to purchase a gift or gifted as a donation on their behalf? Does that need to be reported online? Yeah. Any cash equivalent that's given to an employee of any role in the church, any cash equivalent is considered income. And what gift? Anything. Ron is still disagreeing with me. So Ron says, if I say I'm going to go over to the church and I'm going to do a service for you and I don't want to be paid, I have no interest in being paid and we don't agree upon a price. And then they say, I'm giving you this money for your services at the end. He's saying that's taxable. I disagree with you, Ron. I think if you decided you were going to do it for free, they can say they're giving it to you for services rendered. But if you said you were doing it for free and they gave you money anyway, as far as I'm concerned, it's a gift. I disagree with you. And I do about 250 individual tax returns a year. But Carol agrees with Ron, but I'm always right that therefore that's the end of it. Well, I kind of, I agree with Ron too, but I don't do taxes and that's one of the reasons I don't do it because I like, yeah. Jim says it's true. The pastor has to report gifts because he is in the business. Business, yep. I'm sorry. Gifts are not taxable. I'm sorry. I just, I know that I'm right, but go ahead. Judy agrees with, maybe it's something just for pastors. Maybe I don't know, but that's... Well, because it's a common, here's the thing. It's a common thing to bring in guest pastors to what they call, they actually call it pulpit supply, to supply the pulpit with a pastor because your main pastor is out on vacation. And so even though you say, oh, well, I'll do it for free, you're doing a service and your main business, your main business, if you will, is preaching, then that is. So, yeah. I don't want to deal. No, I've changed my mind. I agree with y'all now. Everybody, now I understand it more. All right. The IRS does not consider these gifts. I agree with that. Okay. I was wrong. I thought I was always right. Well, that's the one time. All right, so Susan is saying she loved those fund buckets. She started learning, she started using them, and then Karen says she went through the training last year and she learned so much, and she highly recommends it for me. Oh, good. Thank you so much for that vote. I love that. Let's keep going. Okay. So now we're going to move on to options for pastors to pay their taxes. So, okay. So first of all, I want to talk about SE taxes. How are those reported? Okay. So we don't have them withheld, right? But we have to report them on our, the pastor needs to report them on his personal tax return. So his personal tax return is a form 1040. And it's reported on a form called, get that, a Schedule SE for self-employment tax. So right now, if you know nothing else, you need to know that you're not going to be able to file a 1040 EZ because you're, you're going to have to add these schedules to your tax return. So you're going to have your regular, you know, two-sided 1040. You're going to have a schedule called a Schedule SE to report your self-employment tax. You're going to report that as income. Big mistake that people make. They think, oh, I need to put this on a Schedule SE. No, no, we're not putting our housing allowance on a Schedule SE. We are putting our entire compensation, the whole pie, onto a form SE that, assuming that's the only thing that would total down to this line. And then it would go on a Schedule 2, which is the additional taxes that we need to pay. And this is the little bow on this thing. Oh, then, oh, sorry. So one, one step further. So the SE taxes, then there's a special line on the 1040 form on the back side that says additional taxes. So the total that came off of our Schedule 2 gets put on to this line on the, to a line on the back of your 1040. And then here's a little bow on this thing that I said. Remember, I said earlier that, well, technically it isn't 15.3%. That's because when you do the SE tax at the very bottom of this, they say, what's 50% of that amount? And you get to take that number onto a Schedule 1 and you get to deduct 50% of your SE taxes as an adjustment to your income. And that looks like this. It goes actually on the front page as an adjustment of income. So it actually lowers your adjusted gross income on your personal tax return. So it sounds, I know this is a whole bunch of stuff. I don't actually do personal income taxes, but I wanted you to know that because sometimes the board is sitting there going, wow, they're having to pay this extra amount. Again, seven points, I'll rather pay 7.65% on my housing allowance than 24%. But you also get this little 50% reduction of your adjusted gross income. 50% of your SE tax actually comes back to you. So in a sense, you're not even paying that full 7.65%. Okay? Is that helpful? Yeah, that's just a huge, it's just basically Barbara showing us what the pastor has to do when she or he fills out the tax. Not something you have to worry about unless you're on this call and you're a pastor. But anyway, go ahead. So Ken is saying that the net effect of that is instead of paying 15.3%, the effective rate is more like 14.3%. Yeah. And 7.65% would have been yours anyway if you were a typical employee. Okay. 10 must be an account. All right, go ahead. Thank you for calculating that for me. All right, so let's move on to our options. So option one for paying the taxes is to do what we call estimated tax payments. It's to form 1040 ES. There's four of them because they are paid quarterly, but estimated taxes have the weirdest dates. So if you don't know, your first one of the first quarter is due April 15th of the current year. June 15th is the second one. Let's think about that. That's only two months later and it's due, right? Then from June 15th to September 15th is your third 1040 ES is due. And then they say, oh, just in case you get a bonus at the end of the year, you might have some extra taxes that need to be paid. So we'll give you till January 15th to make sure you pay your taxes for the whole year. And you do not want to be short. As a matter of fact, the IRS expects that you will pay at least 100% of all the taxes that you owed in the prior year plus 10% in the next year because they assume that you're going to probably have an increase. So just know these dates are really important to know. If you're late, there's penalties for those. And a lot of people just don't know that. They think a quarter. Well, they're quarterly. They even call them quarterly estimated tax payments. And they're going, okay, March 31st, April makes sense. But June 30th, I got to pay this two weeks early, two weeks before the end of the quarter. September I'm paying two weeks before the end of the quarter. And then I get 15 days at the end of the year. It's the craziest calendar, but those are the dates. So keep that in mind. Well, hold on. Let me go back to that just for a second. So if you do option one, this is a pastor would decide to do this. And I'm wondering, my guess is Barbara, and you can speak to this. I'm thinking a lot of pastors don't really do this or they don't know how to do it. So they're asking the church to help them out with this. And so that's why she's kind of talking about this, because you'd go online and get these forms and then you give them to the pastor and say, okay, it's time to pay your taxes. Now they may say, well, you know, can you just like take it out of my check for me and pay it on my behalf? And that's what option two is for. And by the way, this is all your taxes. This would be your federal, your state, or not your state. The state has their own estimate tax pay, but the federal and the social security medicare or FICC or self employment tax. Yeah. Yeah, you take your whole total tax and you could look at last year and you know, I need to pay one fourth on these dates in the current year plus 10%. So you could do it that way. Yeah, I would say the majority of my pastors have gotten a little bit smarter about that because when these dates hit, if they haven't set that money aside, that can be a really big hit to their family finances. So instead they opt for option two. And option two says, hey, go ahead and take the taxes out as additional taxes. And so on the actual W-4 form, the pastor would give this to the person that's in charge of payroll at your house of worship and say, could you just take this extra amount out? And I think Ken said is a good idea, requesting that additional tax to be withheld that 14.3%, 14.13% be taken out as additional tax. You take your housing allowance times 14.13%. And then now at least you know that you're covered there. States also have a similar form if your state has state income tax. They also have an option for you to say, I want additional state taxes withheld. So in case of Pennsylvania, you're going to pay your state tax on not only box one, but on box 14 income. You need to make sure that you're covering yourself there. And this is where things get so confusing for people. So having a good tax advisor is really, really, really, really, really important. Okay. I know several pastors actually just in the last year, sadly, that did their payroll, I'm sorry, their personal tax return incorrectly. And one of them paid no SE tax. I'm like, yeah, you owe that money in on SE tax. And the interesting thing was his house of worship actually tried to help him and said, you need to have this amount taken out of every paycheck so that you're covered for both your federal and your SE tax for federal tax purposes. He did that. He had the amount withheld that like a $10,000 refund. And then spent it never questioning why would they have told me to have this amount withheld and then I would get it back from the IRS. So it was a really sad conversation to have. And it was very lengthy because the house of worship tried to help them, but they didn't ever see him actually do his personal return. So be really careful about that. Yeah. And it is confusing, Barbara, too, because if you understand W-2s, then you know that box two is where you typically put the withholding for income tax. And box four and six is where you put the withholding for half of the social security and Medicare tax. Well, for a pastor, if the pastor says, well, you're supposed to, the pastor is supposed to either pay the taxes in through estimates, which is the option one with the estimated tax payments. But if they want the church to do it and they want the church to pay enough in to cover both the federal and the social security, Medicare or self-employment tax, you got to put the whole thing in box two, which is weird. But that's the way it works. It is weird, but if you think about it from the IRS's standpoint, the IRS doesn't care how they get their money. They just want to know that when you add your SE tax and your income tax calculation on your form 1040 and your total tax line, let's say, says $6,000, they're happy to see that in box two that you've taken $6,000 out to cover it. That's what's going to come in to what was withheld to cover your total taxes. Well, let's move on. So Cindy, this is a great idea, Cindy. She's like, this should be a separate webinar. We should have a webinar for pastors on their individual taxes. That's what we should do. Yeah, it's interesting. You should say that. Yeah, I did a whole in my Goose Deer Church Academy. I actually did this webinar over three one-hour sessions because we took and then we said, and we still need to do one on personal, on the personal pastor side of the other side of the pulpit. Let's go on the other side of the pulpit. We're talking about the house of worship thing, but yeah, totally. So we could do that in December before they decide for next year. And then the operations admin is asking the question that's about to come up, I think, but let's do the setup in QuickBooks first and then we'll finish out with. Yeah, so somebody asked, are you going to show us what it looks like in QuickBooks? So yeah, so if you are using QuickBooks as your payroll program in the desktop version, we're talking about the desktop version, you're going to go to the employees record to the payroll info tab, you're going to put in the clergy salary as earnings, you're going to put the housing allowance as an additional, an addition to that compensation. If you haven't like an auto allowance and non accountable allowance like a auto allowance, you would put that also in as an addition to compensation. Then you would click on the little tax button at the top of the payroll info screen, and this screen will pop up and under federal. You can see that this particular pastor saying don't withhold and don't give me any extra withholding. The key on this little pop up though is you need to uncheck Medicare, Social Security, and federal unemployment tax because churches are not subject to federal unemployment for any, by the way, any of their employees. So all of their employees should have the federal unemployment tax unchecked because they are not subject to federal unemployment, but pastors need to have the Medicare and the Social Security also unchecked. On the online, oh, and this I just, that point was because this person has no extra withholding, that's an indication that they're going to do option one, which is the estimated quarterly payments. Okay, QuickBooks online setup is a little bit different. They also have the pay types, we put the salary in, we put the amount of cash housing. This is not in kind, so QuickBooks online distinguishes between clergy housing cash where you're giving them allowance versus clergy housing in kind, which is your personage allowance, the value of that personage. And then also if there are any allowances like a $300 auto allowance, you can add that as well. Then we go into the withholding section under the federal withholding, you have the opportunity to add extra withholding if you want to. And just kind of, it's like complete opposite of what we did in the desktop. This one is saying, what are you exempt from? So instead of unchecking it, you actually need to check mark the things that you are not, that you are exempt from. So in the case of a pastor, they're exempt from Social Security and Medicare because they're going to pay SE tax instead. And QuickBooks makes a big point about that, that this is not common. So be careful about whether you're selecting that. And again, this only applies to pastor. This one says AZ, State Unemployment in the State of Arizona. We are not subject to state unemployment as well. So just, and that's different in every state too, just by the way. All right. Any quick questions on that? Otherwise, we are going to move on to the final section, which is opting out of SE taxes. Okay. So we'll just select them though. On my online version. Okay. So Susan, you're asking about where to find the QuickBooks online. If you have your payroll through QuickBooks online, you would go to the employee's record. And then there's a bunch of different sections. You have the section on the, let me just go back here quick. You'll have the section on the pay types. And you'll have the section on the tax withholding. That's where you'll find that. Okay. If you're not using QuickBooks payroll, then it doesn't matter. You're going to have, you're going to have your payroll outside of that. So yeah, you wouldn't see it if you're not subscribed to the payroll module. Okay. Perfect. All right. All right. So let's move on to opting out of SE taxes. I'm going to just write it from the beginning. I'm just going to say that I think this is a very dangerous place to be, but I want to just tell you what this is. So there is a form called a Form 4361. This form creates an irrevocable election between the pastor and the IRS. And it only covers church compensation. What the form says is that the pastor is conscientiously opposed to the acceptance of things like Social Security, Medicare, temporary assistance for needy families, food stamps, and WIC. Let me go back to that. The reason that I think this is dangerous, and the reason that I think this is really important to think about is that as a pastor, you are shepherding your congregation, right? So if somebody comes to you and says, I can't make ends meet and I don't have any food to eat, and you're saying they're saying, well, I'm conscientiously, and granted, it's a personal decision, I'm conscientiously opposed to the acceptance of food stamps, but then you're turning around and shepherding your flock to do that. That seems a little bit out of integrity. It also is the, when you get to age 65, it's amazing how many people have opted out of Social Security and Medicare because they were conscientiously opposed, but at 65 they have this epiphany that they actually should take Social Security and Medicare. So just mentioning that, because this is what you're saying, you're conscientiously opposed to that. There are five steps for opting out. You have to first qualify. The way that you qualify is that you have a conscientious opposition to the acceptance of those things that I just mentioned. You have to file the form 43.61 and you have to file it in a timely manner. And there's a whole thing on how the timing of that has to be within the first two years of receiving $400 in compensation as a pastor. You have to inform your church. You don't have to inform the payroll department, by the way, because they don't really care about it. The payroll department isn't going to change what they're doing. They're not going to withhold Social Security and Medicare from your paycheck. So they don't need to know, but your board needs to know. And the board needs to know, and the board needs to be informed because you're relinquishing your, you're going to reduce your AC taxes being paid in. And that could affect what happens later when all of a sudden you realize that your Social Security and Medicare benefits at age 65 are less than you expect. You have to verify. You have to come back and say, yep, I really am conscientiously opposed to the acceptance of those things. And then you receive approval from the IRS. And at that point, and actually you, I believe that you can actually not pay in on the assumption that the IRS is going to approve this. And most of the time, I don't, I think most of the time you get approval, because if you think about it, the IRS just is not going to have to pay as much out to you later because you're not paying anything in. So just keep that in mind. But I want to just, again, I just think it's a dangerous thing to be in this position because you're signing this form under penalties of perjury, that, and I'm going to say it again, a pastor can only opt out if they can truthfully state, I am conscientiously opposed, or because of my religious principles, I am opposed to the acceptance of public insurance that makes payments in the event of death, disability, old age or retirement, doesn't that sound like social security? Or that makes payments towards the cost or provide services for medical care, doesn't that sound like Medicare? So you're saying that I'm opposed to all of that. And that's why when you get to age 65, and you find, and you have this epiphany to accept it, it seems that out of integrity to me. Claiming an exemption from the SE tax cannot be for economic reasons. If you read the instructions on the Form 4361, it says that really clearly. You can't go, oh, well, you know, I'm going to say 14.13 effective rate, percent of effective rate. So I'm just going to fill out this form. It is irrevocable. You can't come back and go, oops, didn't mean to do that. So once you're approved, it's irrevocable. For the rest of your life. For the rest of your life, for your church compensation. Yeah, that was somebody, Debbie had asked, and a couple of other people, other jobs that you have, you can still get the withholding. Yes, you would still correct. But just not the church job. But what happens when you retire then? What happens to the social security that you paid other jobs? Yes, that's a great question. You still, and this is where I'm saying it's kind of an epiphany, you go at age 65, if you have your quarters in, if you have enough non-ministerial wages and you've earned 40 credits, just like you have to do anyway as any other employee, you are entitled to the benefits. But you're only entitled to the benefits on the compensation that you pay those taxes on. So if you worked as a barista, or you have a second job where they're withholding the taxes and you accumulate enough credits, yes, you can actually claim your normal social security Medicare, but it's going to be reduced a lot if you're in the ministry for a long period of time. Also, if your spouse has earned the credits, they're also eligible for their social security. So it doesn't kind of pull over. But here's what the point that I want to make here though is if you decide to file a 43.61, you have to realize that, and let's say that you actually do qualify for a little bit of social security because you had another job before you became a pastor, you're going to have to make up for the difference. So that 14.13 percent effective rate that you did not put into social security, you're going to need to take at least that same percentage, put it towards retirement. If you've been a pastor your whole life, especially these young pastors that are filling this out, they become a pastor and they're a pastor and they don't ever earn their 40 credits. Life insurance, if you think about it, if you don't get your social security, your spouse doesn't get their spousal benefits. If you're disabled, you don't get disability benefits. That's part of the FICA, the old age and disability benefit is so you better have your own disability insurance. Better have a health savings account to help pay for those expenses down the road and long-term care because long-term care insurance, if you don't have long-term care insurance and you're not going to get Medicaid when you get older, you're going to need long-term care insurance. So all of this falls into play and then you kind of have to kind of scratch your head and go, okay, remember we're not supposed to do this for economic reasons anyway, but the point is that that 15 percent, 7.65 percent that you would have had with health anyway if you had been a typical employee is pain for all of these things for you and your family. So I just want, I want to make sure that this is... And again, this is something that the pastor decides, but it's something that, and you don't even really have to change what you do in terms of reporting because they're the one doing it anyway, but we put it on here because we felt like it was important. So we were over by like six minutes. Oh, sorry, okay. I think I'm actually done with that. So just real quickly, we talked about this before. Even if you opt it out of SC taxes, if you have other type of, like you got honorariums from another church, you'd still have to file the SC tax. So just that if you have $400 or more of other net earnings from self-employment, they need to go on the SC tax and useful resources. Carol, you asked ministers audit techniques guide is from the IRS and then also publication 517 is a really good resource as well. Do you want to talk about this really quickly? Yeah, if you could stop sharing, I'll show them, but I think you have to stop sharing. Oh, stop share. Okay. All right. Thanks. So I'm going to share. So I am at our website, which is Quickbook Made Easy for Nonprofits. And I know a lot of you are already customers, but I think a lot of you are new. And if you go into courses and training and you go to webinars, you will see a webinar just for Houses of Worship. It's September the 14th. It's a two day series. So it's September the 14th and 15th. And then just for people that are using QuickBooks desktop, it's going to show you everything you need to know about how to use QuickBooks. That's 199. If you are using QuickBooks online, September 21st and 22nd, that's when we're doing it for QuickBooks online. It's two hours, well, probably two and a half hours a day for the two days. And this is some of the stuff that is going to be in there, but we're going to go through everything, how to handle designated funds, meeting reports, how to enter income, chart of accounts, data entry, tracking ministry expenses. It's the only training that exists just for QuickBooks users with Houses of Worship. And yes, you do get a discount. The discount that you get, where did I put it? Do you want me to share my screen real quick? Well, I think I've got it here. I'll just go back to the end here. That's probably making me sick. But it's 199 normally. And I'm just getting to where the coupon is, the discount coupon. Should have done that at the beginning. All right. So it's normally $199. We're giving you 30 days or $30 off. So when you sign up, it's TS30 off. TS30 off. That's the little coupon code at checkout. And you'll get it for $169. Again, it says it's two to four. I think we're going to make it a little longer. But that's the desktop users on the 14th and the 15th. And then the next week is the online users. If you are somebody that likes to learn on your own, that training, that live training, is a smaller portion of the on demand training. And if you go to on demand, this is streamable training. Here's one just for Houses of Worship. It teaches you more than what will be getting live. You can either get it in online or desktop. Either one is normally $299. We are going to give it to you for $269. We're giving you $30 off of that. TS30 off. TS30 off. And then finally, if you would rather just talk to us and just have technical support and you can call Barbara or myself, you call a tech support number. We can even create appointments, dial in. We can help you with whatever you want. We can give you a year of tech support that's normally $499 for $299. You can call 24 hours a day, seven days a week. I'm the one who usually answers on the weekends, by the way. Although, Barb, you've been answering on the weekends as well lately. And to get to that, you go to tech support and you click on year and you click on the version you have. It's normally $499. If you put this code in, TSTS 299, you'll get $200 off. These coupon codes are good until Saturday night. They're good until Saturday night. So I think that's everything. So Debbie asked a question, if you currently have desktop version, but have not used the payroll portion, would we need a different version? 2016 isn't that much different than 2022, to be honest. So you're fine. And we're not going into the payroll anyway. This is more about just how do you set up your house of worship, get meaningful reports, create accountability, kind of soup to us. If you're a do-it-yourselfer and you're like, I got to start this thing over, or I want to revamp using my methodology for designating restricted funds, you'll get everything that you need, either in the two-day or in the downloadable training product. But 2016 works fine. Okay. All right. Well, I will, I think that'll be it. Did you want to finish this, Sal Arifa? Yeah. So just real quickly, Debbie is saying, how would you report deductions for payroll? We do go into that, how you report payroll in QuickBooks in both the two-day and in that. I am so blessed to have this privilege to do this webinar. Thank you, everybody, for attending. Thank you for your great questions. That helps us a lot. And have an incredible day and do great things in your house of worship.