Church payroll

Last updated: April 7, 2026

Church payroll is how religious organizations pay their employees. The process can be complex because payroll tax rules differ between clergy members and non-clergy members, such as housekeepers.

This guide covers the basics of compensating clergy and other church employees. Employers will learn how to run church payroll, common mistakes to avoid and tips for choosing reputable payroll providers.

Church payroll key takeaways

• Members of the clergy pay SECA tax and are exempt from FICA taxes.
• Churches must withhold FICA taxes from any employees not considered clergy.
• Housing allowances are available to clergy members income tax-free as long as the payments are deemed “reasonable” compensation.
• Churches are exempt from federal unemployment tax and state unemployment tax in some states.
• Payroll software can help churches manage SECA and FICA compliance and pay their clergy with confidence.

What is church payroll?

Church payroll is the process of compensating clergy members and other people who work for religious organizations. Clergy members are defined as ministers, members of a religious order performing duties required by the order and Christian Science practitioners. Examples of non-clergy employees include day care workers and housekeepers. Payroll tax rules differ between these two groups, which can sometimes make church payroll processing complex.

Clergy compensation basics

Properly paying clergy members requires an understanding of the Self-Employment Contribution Act (SECA) and housing allowances.

SECA

SECA is a tax paid by independent contractors to fund Medicare and Social Security. The rate is 15.3% of taxable income, which is equivalent to the combined Federal Insurance Contribution Act (FICA) total paid by employees and employers.

What does this legislation have to do with clergy? The Internal Revenue Service (IRS) considers clergy members to be employees for federal income tax purposes, but treats them as self-employed individuals for FICA taxes.

As such, religious organizations must withhold income tax from clergy compensation, but should not deduct Medicare and Social Security taxes. Withholding FICA would result in clergy members overpaying the federal government because they independently file and pay SECA tax.

Religious organizations may choose to pay SECA on behalf of their clergy members, however, the tax payments must be reported as taxable income.

Housing allowances

Clergy commonly receive a housing allowance or parsonage pay to help cover the cost of lodging. This payment is tax-exempt as long as it’s not more than “reasonable” compensation for a clergy member’s services.

Non-clergy compensation

Wages paid to employees of churches and qualified church-controlled organizations who are not members of the clergy are subject to Social Security and Medicare taxes. The church or religious organization must also pay its share of FICA taxes, which is 7.65% of each employee’s gross income.

There are two exceptions to this rule as stated:

1. Employees earning less than $108.28 in a calendar year may be exempt from FICA taxes.
2. Churches and qualified church-controlled organizations can elect exemption from the employer portion of FICA taxes by filing IRS Form 8274.

Payroll software for churches

Payroll software can help religious organizations pay clergy members correctly and manage the complexities of SECA and FICA compliance. Modern solutions that use automation also save time, so church leaders can focus more attention on serving their faith communities and growing their congregation.

As the organization expands, the payroll provider may be able to offer additional capabilities to meet new needs. Time and attendance, benefits administration and HR services are a few examples of payroll add-ons that can help religious leaders manage their people more effectively and improve their engagement.

Key features to look for in church payroll software

When choosing a payroll service, religious organizations may want to prioritize solutions that offer the following features:

• Automatic wage and tax calculations and deductions (as necessary)
• Mobile capabilities that allow payroll to be run from anywhere, at any time
• Flexible payment methods so church employees can be paid their way
• Support from payroll experts to help resolve any issues that arise
• Compliance services and updates to keep pace with evolving regulations

How to run payroll for church employees and clergy members

Payroll software makes it easy for churches and other religious organizations to pay their people. Here are all the steps that a provider handles behind the scenes:

1. Calculate gross pay
   Multiply each church employee’s hourly rate by the total hours worked to determine gross pay. If a clergy member earns a salary, divide the gross annual salary by the number of pay periods in the year.
2. Process statutory deductions
   Withhold income tax from the gross pay of all church employees, including clergy members. Deduct FICA taxes from non-clergy members only.
3. Process voluntary deductions
   Churches may be eligible to sponsor tax-sheltered annuity 403(b) retirement plans. Withhold employee contributions to these plans and any other benefits as needed.
4. Calculate net pay
   Subtract the total deductions from each church employee’s gross pay to determine net or take-home pay.
5. Remit and file taxes
   The taxes withheld from the employees’ wages and the employer’s FICA dues (accrued from non-clergy members) must be paid and reported to the appropriate government agencies. Note: Churches are generally exempt from federal unemployment tax, as well as state unemployment tax in some states.
6. Document payroll records
   The payroll data generated each pay period must be securely recorded and retained for the periods specified by the Fair Labor Standards Act (FLSA) and other federal and state regulations.

Common church payroll mistakes

The primary duty of most religious organizations is serving their faith community. Payroll is often secondary, and without expertise, mistakes can happen. Some of the most common payroll errors committed by churches include withholding FICA taxes from clergy pay, processing housing allowances incorrectly and misclassifying employees.

Withholding FICA from clergy pay

It can’t be stressed enough that clergy members pay SECA tax, not FICA tax. If a religious organization mistakenly withholds Medicare and Social Security taxes from clergy compensation, the clergy will be taxed twice as much as they should.

Improper housing allowances

To avoid tax complications, church housing allowances must follow these basic rules:

• Parsonages are exempt from income tax, but not SECA tax.
• Housing allowances must be “reasonable” and documented in writing; otherwise, the IRS treats them as taxable income.
• Only ordained, commissioned or licensed clergy members who perform sacerdotal functions are eligible for housing allowances.

Misclassified employees

Many people might perform services for a religious organization, and knowing which of them are employees vs. independent contractors is not always easy. For example, a housekeeper who regularly cleans a single church and has no other clients may be an employee. Misclassifying this person as an independent contractor could result in unpaid taxes and potential penalties.

How to choose the best church payroll service

Choosing the right payroll service for a church, or any organization for that matter, comes down to identifying the features needed. Some churches may only need basic payroll processing, while others might require a larger HR suite, complete with payroll, time tracking and benefits administration.

Once religious leaders have determined their requisite payroll functions, they can further narrow providers based on the following criteria:

1. Trust
   It’s essential to have full confidence in the company chosen to handle payroll and know that they have prior experience with other religious organizations to do the job right.
2. Service integrations
   Religious leaders should evaluate how payroll can be integrated with other parts of their organization to be as efficient as possible. Common payroll integrations include accounting, employee time and attendance, and benefits.
3. Overall value vs. cost
   Cost is always top of mind, especially for churches on limited budgets, but overall value is imperative, too. Customer support, product scalability and savings of time and resources are all things to keep in mind when evaluating payroll providers.

Frequently asked questions about church payroll

This article is intended to be used as a starting point in analyzing church payroll and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services.