The short answer to this question is yes.
Unlike non-clergy employees, clergy do not have Social Security or Medicare taxes taken out of their paycheck. The Church also does not pay any matching portion to IRS, so the Minister has to pay both halves, the employee and employer portions. These are usually paid in quarterly estimates, using coupons or vouchers.
In some cases, the Church may decide to pay half of the Social Security and Medicare taxes on behalf of the Minister, even though they are not required to. This payment of taxes on behalf of the Minister is called a “Social Security Allowance”.
Unlike other types of allowances, this payment of taxes for the Minister is considered taxable income. If the Church pays $1,000 of tax, you have to report an additional $1,000 of income on your tax return. The end result is that you will owe slightly more tax as a result of taking the allowance.
Do you have compensation questions? Clergy Financial Resources answers questions as part of our annual tax service, or separately as a Pro Advisor Support. Visit our website at https://www.clergyfinancial.com/resources/proadvisor/ for more details on scheduling a Pro Advisor conference.
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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