October 11, 2016

Correct Reporting of Minister's Retirement Contributions and Expense Reimbursements

Question: 

Two questions regarding issuing a minister’s year-end earnings reports (i.e., Form W-2 or, in rare situations, Form 1099-MISC):
1.) Should the amount of retirement that the church pays monthly on the behalf of its pastor be included?
2.) Should mileage reimbursements be included?

Answer:

Regarding the proper IRS Form for reporting salaries and wages, please see the following Ministry CPA blog post.

When reporting other types of compensation a pastor receives, the preparer should follow the Form W-2 instructions. For example, in Box 12, the IRS provides several codes relating to various types of retirement benefits.

Churches may contribute to several types of retirement plans on behalf of their employees. Internal Revenue Code section 403(b) plans permit employer "non-elective" and matching contributions. Matching contributions involve elective deferrals by the employee, either pre-tax (403(b) plans) or after-tax (403(b) Roth plans). Form W-2 instructions provide Box 12 codes for these type of plans. The instructions also offer guidance regarding a Retirement Plan check box on Form W-2.

Some churches wish to contribute directly to employees' Individual Retirement Accounts. Unless established through plans such as a Simple IRA or SEP-IRA (see IRS Publication 560), employer contributions directly to employee IRA accounts are fully taxable income reported in Box 1 of Form W-2 with no other reference to retirement plan contributions cited on the form.

Per the 2016 Form W-2 instructions mileage reimbursement does not normally have to be reported on a Form W-2. The mileage reimbursement only needs to be reported if the amount reimbursed “exceeds the amount treated as substantiated under IRS rules" or is not made based on accountable plan rules (see MinistryCPA blog post ).

See past MinistryCPA posts regarding this topic: 

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