Can a pastor take a voluntary pay cut and consider it as their tithe?

Many churches offer their pastors the ability to deduct their tithes from their paycheck to make it easier for pastors to give regularly. In an effort to creatively reduce the pastors’ tax burden, some churches have gone a step further and allowed pastors to voluntarily reduce their own pay and consider the amount of the reduction as their tithe.

While we don’t advocate people pay more in taxes than they should, we do believe that each person should “render to Caesar what belongs to Caesar” (Matthew 22:21). In employing this voluntary pay adjustment, churches violate the Constructive Receipt of Income rules described in income tax regulation 1.451-2(a).

What is the Constructive Receipt of Income rule?

In short, the Constructive Receipt of Income rules say that income is considered as “received” by an individual during the taxable year it is credited to him, whether or not he takes possession of the income. If it was available so that he could draw upon it at any time with notice, he or she has received it.

If this amount was considered as being given to the church by the individual, that person is being given credit for the income. Furthermore, the individual would have the ability to collect their full pay without the reduction if they wanted to, which puts them in control of the funds. In this scenario, the income would be considered as being given to the church staff member and would need to be included as any other wages on their W2.

Skip the Administrative Burden

Because any amount deducted for the tithes would still need to be included as wages, it becomes an unnecessary administrative burden to accomplish paying tithes this way. Most payroll software will not handle that properly – and those that give you the option will often make a mess of it in short order.

Recommended Alternative

So what should be done instead? The cleanest way for church staff to pay tithes is like anyone else – use cash/check or online giving to make your contributions. It keeps contributions in the staff member’s court to manage.

If it is really important to offer this option to your staff, be sure to have a written and signed agreement authorizing the post-tax payroll deduction. Then build into your payroll workflow to make the proper adjustments in your books and record the amounts in your church management system after each payroll.

For further questions, please contact Jake@churchfinancepros.com.