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What Does Clergy Dual Status Mean?

Under federal law, most ministers have dual tax status. Dual tax status means a minister is an employee of the church for federal income tax purposes, and self-employed for Social Security and Medicare taxes. For ministers, wages are reported in two different ways:

Federal Income Tax = Employee status

Ministers who meet the Internal Revenue Service (IRS) definition of a minister are considered an employee of the church for federal income tax purposes.

  • Ministers are required to pay federal income taxes, although they are exempt from automatic federal income tax withholding from their paycheck.
  • To cover any tax liability, the ministry can set up voluntary income tax withholding at the minister’s request.
  • All voluntary withholdings should be reported by the ministry in Box 2 of Form W-2 and forwarded to the U.S. Treasury.

It is possible, but much less common, for ministers to be designated as self-employed for federal income tax purposes. Before doing this, seek the advice of a clergy tax professional. These returns are more likely to be audited by the IRS because, often, they’re not in compliance.

Social Security and Medicare Tax = Self-Employed Status

For Social Security and Medicare tax reporting purposes, the majority of ministers should be classified as self-employed with respect to income for pastoral duties. This means they are generally subject to Self-Employment Contributions Act (SECA) tax. When this is the case:

  • The church should not withhold Social Security and Medicare FICA taxes from the minister’s wages.
  • The church should not make a FICA payment for the minister.
  • The minister is responsible for paying into the Social Security/Medicare system through self-employment (SECA) tax payments. Amounts are reported quarterly on Form 1040-ES.
  • The minister is voluntarily allowed to withhold sufficient federal income taxes to cover any self-employment tax liability.

Contact Clergy Financial Resources to help you with the next steps.

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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

For more information or if you need additional assistance, please use the contact information below.

Clergy Financial Resources
11214 86th Avenue N.
Maple Grove, MN 55369

Tel: (763) 425-8778 
Fax: (888) 876-5101
Email: clientservices@clergyfinancial.com

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