A non-taxable benefit is being reported in box 1 of Form W-2 for my pastor?
How do I correct this error?

This is caused when a benefit has not been setup correctly. To change the tax settings, do the following:

  1. From the Payroll screen, click the Setup button.
  2. On the Payroll Setup screen, click the Setup button and then click Deductions/Benefits in the drop down list.
  3. Find the benefit in the list and click on it with the mouse to select it.
  4. In the green box that lists federal, state, and local taxes, find "Federal(USA)-Income Tax."
  5. There should not be a 'XX' in the "Applies to" column for Federal Income Tax. Double click on "Federal(USA)-Income Tax" to remove the 'XX'. See the illustration below.

After changing this setting and calculating the W-2 report again, the benefit will no longer be included as taxable income in Box 1.

Un-select Federal Income Tax