Church payroll looks like small-business payroll until the pastor's paycheck. IRS Publication 517 treats a minister who is a common-law employee of the church as an employee for income tax, but as self-employed for social security and Medicare on ministerial earnings; some ministers are self-employed for income tax as well. A payroll tool that cannot hold that distinction per person will either withhold FICA it should not or force the administrator into manual workarounds every payday. This page reads the rules from Publication 517 (2025 edition, revised February 2026) and each vendor's own documentation, read October 27, 2026. We have not tested the products.
For whom: a church or ministry administrator paying a minister alongside lay staff. Not for: deciding whether a given person qualifies as a minister, or whether a church should file for a FICA exemption for lay employees; that is a question for a tax adviser.
What the IRS rules mean for the payroll setup
| Rule (Publication 517) | What the payroll tool must do |
|---|---|
| Ministerial earnings are exempt from FICA; the minister pays self-employment tax unless an approved Form 4361 exemption applies | Turn off Social Security and Medicare for that person only, while lay staff keep normal FICA |
| A minister's salary for ministerial services is not subject to federal income tax withholding; a voluntary withholding agreement is possible | Allow zero withholding by default, or a voluntary amount the minister requests |
| An officially designated rental allowance is excludable only up to the smallest of the amount designated, the amount actually spent to provide the home, the fair rental value of the home (furnished) plus utilities, and reasonable pay | Pay the designated allowance as a separate pay type, and keep in mind that only the qualifying part is excludable; the minister settles the rest on the return |
| The allowance still counts for self-employment tax | Do not treat it as tax-free everywhere; the minister reports it on Schedule SE |
| A church may report the rental allowance or parsonage value in box 14 of Form W-2 | If the church reports it, show the allowance in box 14, not in boxes 1, 3 or 5 |
Lay employees (secretary, custodian, music director) are ordinary employees for payroll, with normal withholding, FICA and Form 941 under Publication 15, unless the church or qualified church-controlled organization elected out of employer FICA by filing Form 8274; Publication 517 says its employees then pay self-employment tax instead.
What each tool documents
| Tool | Clergy FICA | Housing allowance | Source read |
|---|---|---|---|
| OnPay | Lets you mark clergy members exempt from Social Security and Medicare; notes that clergy pay in through Schedule SE | Not described on its church payroll page | OnPay's church payroll page |
| QuickBooks Workforce | Exempt a clergy employee by checking Social Security, Medicare, FUTA or state unemployment as appropriate | Clergy Housing (Cash) when you give funds, Clergy Housing (In-Kind) when you pay housing costs directly | Intuit help article, updated August 2026 |
| Gusto | Not verified: its help article on minister housing allowances could not be opened on October 27, 2026 | Not verified | — |
OnPay also states that its team does not assist with Form 8274, the form a church files to elect out of FICA for lay employees.
Our pick
OnPay. It is the tool whose own page says, in plain terms, that clergy can be marked exempt from FICA, the setting that separates a minister's pay from lay staff, and it runs lay-staff payroll in the same account. Ask in the demo how it pays and reports a housing allowance in box 14, because its church page does not describe it.
- Pick QuickBooks Workforce instead if the church's books are already in QuickBooks Online: its help article documents both clergy housing pay types and the FICA exemption checkboxes.
- Gusto may fit, but we could not read its clergy documentation on the day we checked; confirm it before choosing.
Counter-case: a church whose only paid worker is a minister may decide a payroll service is more than it needs, since no FICA is withheld and income tax withholding is voluntary. A minister who is a common-law employee still receives a Form W-2, where Publication 517 says the allowance may be shown in box 14; a tax adviser can confirm which other filings remain.
For other tax-exempt employers, see payroll software for nonprofits.
Traceable evidence
Sources for this decision
- regulatorPublication 517 (2025), Social Security and Other Information for Members of the Clergy and Religious WorkersInternal Revenue Service · checked Oct 27, 2026 · supports: IRS Publication 517 (2025, revised February 20, 2026): ministerial earnings are exempt from FICA and covered by SECA unless an approved Form 4361 exemption applies, a minister's salary for ministerial services is not subject to federal income tax withholding though a voluntary withholding agreement is possible, an officially designated rental allowance is excludable only to the extent used to provide a home and not more than the designated amount, the fair rental value (furnished, plus utilities) or reasonable pay, but counts for SE tax, some ministers are self-employed for income tax as well, a church may report the allowance in box 14 of Form W-2, and churches and qualified church-controlled organizations can elect exemption from employer social security and Medicare taxes by filing Form 8274, in which case their employees pay SE tax on wages; it does not decide whether a given person is a minister.Open source ↗
- regulatorPublication 15 (2026), (Circular E), Employer's Tax GuideInternal Revenue Service · checked Oct 27, 2026 · supports: IRS Publication 15 (2026): 2026 social security rate of 6.2 percent each for employer and employee on wages up to 184,500 dollars, Medicare 1.45 percent each with no wage base, 0.9 percent Additional Medicare Tax withheld on wages over 200,000 dollars with no employer share, FUTA 6.0 percent on the first 7,000 dollars with up to a 5.4 percent credit (0.6 percent net), monthly depositor status for 50,000 dollars or less in the lookback period and for new employers' first calendar year, deposit by the 15th of the following month, the 100,000 dollar next-day rule for taxes accumulated within a deposit period, which also makes a monthly depositor semiweekly, late-deposit penalties of 2, 5, 10 and 15 percent (15 percent for amounts unpaid more than 10 days after the first notice or after notice and demand for immediate payment, whichever is earlier), the 100 percent trust fund recovery penalty on responsible persons who willfully fail to collect or pay over trust fund taxes, quarterly Form 941 and annual 940, employers notified by the IRS filing the annual Form 944 instead of Forms 941, W-2 duties, applying for an EIN online or with Form SS-4, Form I-9 and E-Verify for new hires, the 2026 Form W-4, reporting new employees (including rehires after 60 consecutive days of separation) to a state new hire registry where many states accept a copy of Form W-4, references to Publication 15-T withholding tables, EFTPS and SSA W-2 e-filing described as free, and the rule that an employer remains responsible when a third-party payer fails; it does not cover state taxes.Open source ↗
- vendorOnPay official product siteOnPay · checked Aug 5, 2026 · supports: Vendor-published product scope used to verify capabilities relevant to this buyer context: Small employers and accountant-managed businesses comparing a focused payroll and HR workflow.. It does not prove the guide's fit verdict, configured performance, current pricing or compliance.Open source ↗
- vendorQuickBooks Workforce official product siteQuickBooks Workforce · checked Aug 5, 2026 · supports: Vendor-published product scope used to verify capabilities relevant to this buyer context: Teams that want payroll evaluated in the context of an existing QuickBooks accounting workflow.. It does not prove the guide's fit verdict, configured performance, current pricing or compliance.Open source ↗
- vendorGusto official product siteGusto · checked Aug 5, 2026 · supports: Vendor-published product scope used to verify capabilities relevant to this buyer context: Small employers that want payroll, employee records, and benefits workflows evaluated together.. It does not prove the guide's fit verdict, configured performance, current pricing or compliance.Open source ↗
- vendorOnPay payroll for houses of worshipOnPay · checked Oct 27, 2026 · supports: OnPay's church payroll page stating that clergy members can be marked exempt from Social Security and Medicare taxes, that clergy pay into Social Security and Medicare through Schedule SE, that OnPay's team does not assist with Form 8274, and that churches should consult a tax advisor; it does not describe housing-allowance handling.Open source ↗
- vendorQuickBooks help, clergy and church payrollIntuit · checked Oct 27, 2026 · supports: Intuit help article (updated August 5, 2026) for QuickBooks payroll products, including steps under Intuit QuickBooks Workforce, to exempt clergy from Social Security, Medicare, FUTA or state unemployment by checking those taxes, and to pay a housing allowance with the Clergy Housing (Cash) or Clergy Housing (In-Kind) pay types; it does not decide eligibility for the exemption.Open source ↗