Recording Payroll in Accounting
Though ChurchTrac is NOT a church payroll platform, you still need to enter your final payroll numbers into the Accounting screen to track your church's finances properly (United States only).
- Pastoral Contributions & Allowances
- Create Your Categories
- Create Your Payees
- Create a Transaction
- What About Recording My Quarterly 941?
Pastoral Contributions & Allowances
Before recording payroll, it’s important to understand how pastoral contributions and allowances are handled, as clergy are taxed differently than regular employees in the United States. Whether an amount is taxable, non-taxable, or treated as a deduction depends on how the pastor is classified and how the contribution is structured.
1. Taxable Allowances or Contributions
Some pastoral payments are considered taxable income by the IRS. These amounts are included as part of the pastor’s gross income and should be reflected accordingly in your payroll totals. Common examples include cash allowances or contributions that do not meet IRS requirements for exclusion.
When recording taxable amounts in ChurchTrac, include them in the appropriate payroll expense category based on the final totals provided by your payroll platform.
2. Non-Taxable Allowances or Contributions
Certain allowances—most commonly approved housing allowances—may be treated as non-taxable income for federal income tax purposes if they meet IRS guidelines and are properly designated in advance.
Because eligibility and limits are governed by IRS rules, these amounts should be determined by your payroll provider or tax professional before being recorded in ChurchTrac.
3. Deductions & Retirement Contributions Outside of Payroll
Some contributions, such as retirement contributions or other deductions made outside of payroll, may reduce taxable income or be recorded separately depending on how they are structured.
Whether these amounts are taxable or non-taxable depends on the plan type and IRS regulations. Always rely on your payroll service or CPA to determine how these should be reported before entering totals into ChurchTrac.
4. Voluntary Withholding for Clergy
Clergy typically do not have standard W-4 federal income tax withholding unless they request it. Instead, many clergy make quarterly estimated tax payments, similar to a self-employed individual.
If a pastor chooses voluntary withholding, this is recorded as an additional amount in payroll using the W-4 form. The clergy member remains responsible for ensuring their total tax obligation is met.
For official guidance, review IRS Tax Topic 417 or consult a licensed CPA experienced in clergy taxation.
Step 1: Create Your Categories
Create your Budgeted and Non-Budgeted Payroll Tax Categories with the following sub-categories in the accounting screen:
Budgeted vs Non Budgeted Categories
When setting up categories for payroll, it's important to distinguish between budgeted and non-budgeted items. Budgeted categories will have allocated amounts in your budget, while non-budgeted categories are used only for tracking purposes and not included in your budget. Learn more about Budgeted vs Non Budgeted Categories ›
Step 2: Create Your Payees
Create a Payee for each employee using your main payroll category, followed by the additional payroll taxes you created in step 1. Be sure to mark the Transaction Type as an expense as well.
The amounts you enter are based on the calculations made by your payroll platform. Your top payroll category will be a positive number, while the taxes will be listed as negative.
Step 3: Create a Transaction
Create an accounting transaction on your checking account from your saved payee. Be sure to verify the amounts with your payroll platform for non-salary employees, as those amounts may change for each paycheck.
What about Recording my Quarterly 941?
Create a Payee for your Quarterly 941 to make recording your IRS payments quick and easy. We recommend leaving the amounts as "0" since your amounts will likely vary from quarter to quarter.
