Pensions and Benefits USAChurch of the Nazarene

Clergy CompensationAn Overview

Know the Basics

www.pbusa.org/nts

Pensions and Benefits USAChurch of the Nazarene

The Three “P”s of Local Church Expenses

Personnel

Property

Program Note: Allocating the cost of having a Pastoral Ministry may include some expenses in each of these categories.

Pensions and Benefits USAChurch of the Nazarene

Some Ground Rules• The cost of having a pastoral ministry includes two parts:

1. The cost of what is done:  Program costs (and maybe Property costs)

2. The compensation for who does it (Memo #4): Personnel costs

• Ministers have a unique tax status (Memo #12 and Busby’s Tax Guides).– First: Determine IRS “minister” status

– Income Tax: Employee (Form W2)

– Social Security Tax: Pays as if self‐employed (SECA)

• The local church employermust remain engaged in the process.

Pensions and Benefits USAChurch of the Nazarene

It Matters How “Pastoral Ministry” Expense is Paid!

Third: Partially Tax-Favored Benefits

Finally: SalaryFinally: Salary First: Expense Reimbursements

Second: Tax-Favored Benefits

Pensions and Benefits USAChurch of the Nazarene

1. Expense ReimbursementsLocal Church Program Expense

• Set up an Accountable Expense Reimbursement Plan (Memo #11)

• The Five “W”s of accountability:– What, Why, When, Where, Who

• Avoid:– Receiving any budgeted “balance” at yearend– “Reclassifying” funds after payment

Pensions and Benefits USAChurch of the Nazarene

2. Fully Tax-Favored BenefitsThe First Level of Compensation

• Why? Dollars are free of both SECA and Income Tax liability.

• What Benefits?– “Health and Welfare” benefits (e.g., insurance)– Caution: New rules regarding “health benefits” per ACA– 403(b) Plan contributions (clergy only for SECA)– Some “cafeteria” benefits (e.g., dependent care)– Caution: Use the services of a qualified benefits provider or legal

counsel when setting up local church-sponsored benefit plans.

Pensions and Benefits USAChurch of the Nazarene

Nazarene Senior Pastor AnalyticsTowers Watson Study Results

Pensions and Benefits USAChurch of the Nazarene

3. Partially Tax-Favored BenefitsThe Second Level of Compensation

• Housing and/or Housing Allowance– Memos #1 and #13

• Three tests for exclusion:– Designated in advance– Spent on qualifying expenses– Does not exceed Fair Market Rental Value

• Subject to SECA taxation• Certain expenses paid with housing allowance may also be 

deductible.

Pensions and Benefits USAChurch of the Nazarene

4. Fully Taxable RemunerationFinal Level of Compensation

• Cash Salary! • How much is enough? (Memo #7)

– Principle of thirds– Reflects the market value of the work– Is reviewed “at least” annually– Review includes performance (Benchmarks)

http://compstudy.lifeway.com

Pensions and Benefits USAChurch of the Nazarene

The Bi-vocational Pastor

• Depending on one’s definition, as many as half of clergy are “dual employed.”

• Reimburse expenses first, then take tax‐favored benefit payments (e.g., disability insurance). 

• Don’t forget about retirement!IDEA: Report your pastoral work and your 

secular work to your board.

Pensions and Benefits USAChurch of the Nazarene

It Matters How “Pastoral Ministry” Expense is Paid!

Third: Partially Tax-Favored Benefits

Finally: SalaryFinally: Salary First: Expense Reimbursements

Second: Tax-Favored Benefits

Pensions and Benefits USAChurch of the Nazarene

Serving Those Who Serve

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(If English is not your language of choice, please don’t hesitate to call P&B representatives who have access to a service that allows ministers to have 

conversations interpreted in real time in their fluent language).