“Now we ask you, brothers and sisters, to appreciate those who diligently work among you , recognize, acknowledge, and respect your leaders, who are in charge over you in the Lord and who give you instruction, and we ask that you appreciate them and hold them in the highest esteem in love because of their work on your behalf. Live in peace with one another.
1 Thessalonians 5:12-13 AMP
Every October, churches across the United States make a point of appreciating the pastors in their congregation, those that give of their lives to serve the church. These celebrations include cards from parishioners, and gifts of many kinds. As churches seek to bless their pastor(s), it should be remembered that checks and gifts given on Pastor Appreciation Sunday, or any Sunday, are taxable income to pastors.
If a church is planning to give cash or a gift card on Pastor Appreciation Sunday, to truly bless the pastor, the church can and should “gross-up” these gifts. To “gross-up” the gifts means increasing the amount of money given to cover the income taxes incurred by a gift. This can be done by including the following amount in their paycheck:
15.3% for SECA tax, and
20% for Federal and State income tax. We recommend using 15% Federal income tax and 5% for State income tax as estimates. The Federal rate depends on the pastor’s actual form 1040 and is likely not known by the church.
The amount added to gross up for taxes is also taxable income. To gross up for all the taxes, the following calculation can be used:
Gross Payment = $Net Pay
(1-.355)
If a church wants to hand their pastor a card with a check for $250 on Sunday in front of the congregation, they would calculate the gross payment using the calculation above. This would look as follows:
Gross Payment $387.60 = $250 Net Pay
(1-.355)
The $387.60 would be included in their payroll as salary, $137.60 would be withheld as voluntary FITW and SITW and $250 would be deducted as a prepayment (no additional net amount would be paid to the pastor).
If the church decides not to gross up the gift, the clergyman has $250 to spend at their leisure in October but will likely have to pay around $88.25 on their tax returns next year.
In addition to the cash gifts listed above, churches could choose a few other options for gifts to offer their pastors:
Provide for their tax returns to be completed. We have a Pastor’s Appreciation Package to make gifting a Pre-paid Tax Return Preparation easy. Check out Wisdom’s Personal Tax Preparation services to learn more.
Contribution to the pastor’s 403b, if applicable.
Hold a Pastor Appreciation meal where church members can bless their pastor(s).
Encourage church members to individually reach out and bless their pastor(s) with cards, meals, or other gifts of their time.
Our Wisdom Payroll Team is well versed in grossing up and including prepaid gifts in the payroll system. Check out Wisdom’s Payroll Solutions to see how Wisdom can work with your church!