“Do I correct this when I complete our taxes (subtract the deducted amount from the computed amount of self-employment taxes)?”---> If the employer is not a church or qualifying tax exempt organization, then he does not get his money back. An exemption from social security and Medicare tax applies only to his ministerial income. If the employer is a church, then the church must file Form 941c to get the money back and then forward the minister's portion to him. It will also be necessary for the church to file corrected Forms W-2c and W-3c.The church may not withhold FICA taxes from a minister even if he requests it. The Internal Revenue Code clearly classifies a minister as self-employed for purposes of social security and Medicare tax matters. Even though ministers can be considered church employees, they are treated as self-employed for Social Security and Medicare tax purposes. Churches cannot withhold Social Security and Medicare tax from a minister's paycheck. and does not have to match any FICA tax as none is held out.
“ Or, do I need to somehow work with the payroll people to go backwards and correct this from their end?”---->I guess so; you need to let them know and MAY request them to get this money back or have the church file corrected Forms W-2c, W-3c, and 941X.