The answer is “both.” Ministers have what is commonly referred to as “dual tax status.” For federal income tax purposes, a minister is generally treated as a common-law employee. For payments into Social Security, the minister is always self-employed. This is an IRS regulation and not an election.
When a church hires an employee, one of the initial decisions that must be made is whether to treat the worker as clergy, non-clergy employee, or contractor. This decision may seem insignificant, but it has huge implications when it comes to payroll.
If the minister owns or rents their home, they must pay the entire 15.3 percent self-employment tax on salary, housing, and other taxable income. If the minister lives in a parsonage, they must pay the entire 15.3 percent self-employment tax on salary, the fair rental value on the parsonage, utilities paid by the church, and other taxable income.
Many churches provide additional funds to assist their ministers in the payment of this self-employment tax. This is often called Social Security allowance, SECA allowance, or FICA offset. Whatever you name it, this amount is additional compensation reported in box 1 of form W-2.
Many churches are also unaware that section 3121(b)(8)(A) prohibits the church from withholding FICA tax (Social Security and Medicare tax) on the wages earned by a minister.
Itinerate evangelists, honoraria income, pulpit supply, speaking engagements are common examples of ministers who do not have employee status; they are entirely self-employed.
Clergy Financial Resources offers several options to help you with your tax questions or filing. Pro Advisor below is a great option to get started.
- Pro Advisor I Tax Support
This support service provides you comprehensive answers to your notice questions. This support service is available at a flat rate of $45.00 for each 30-minutes session.
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.
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