The treatment may vary slightly under different states but this is how we set up clergy payroll in New Jersey:
1) Ordained clergy typically get a W-2 with Box 1 and 16 (federal and state) wages only.
2) Federal, State income taxes may be withheld.
3) FICA should be handled as if they are self employed (no box 3,5,7 wages or taxes).
4) No UI/DI/FL for ordained clergy in NJ.
5) Housing (or parsonage) allowance not taxed as income but reported in Box 14 on W-2. It is added to the amount on Box 1 of the W2 for calculation of self-employment tax.
6) Only one electronic bank payment transaction can be processed per employee per pay period. We combine the wages plus parsonage plus other reimbursements and allowances into one electronic deposit per pay period.