Ministers Versus Non-Ministry Employees
Churches should make a careful distinction between their paid workers who are acting as ministers versus those who are non-ministry employees.
There are several considerations that can only apply to those who qualify as “ministers.” First, ministers can receive a clergy housing allowance, if properly designated, which shields a portion of compensation from being deemed taxable income. Second, ministers can apply for exemption from participation in the social security system (both as to the requirement to pay into the system, and the ability to reap the benefits of the system). Third, ministers who remain in the social security system are treated as self-employed when it comes to social security, yet as church employees when it comes to federal income taxation. Finally, ministers are exempt from mandatory federal tax withholding requirements and instead file quarterly tax payments.
How can a church determine who among their paid workers is acting as a “minister” versus who is acting as a non-ministerial employee? First, and most importantly, to be considered a minister one must be ordained, commissioned, or licensed as a minister. Denominations often have guidelines as to how to accomplish ordination. For independent congregations, the bylaws should contain a provision empowering the church leadership to perform ordinations.
Second, to be considered a minister, one must be involved in the following kinds of activities:
- Administering religious sacraments,
- Conducting religious worship,
- Engaging in management responsibilities for a church or denomination, and/or
- Being considered a religious leader by a church.
This list of activities is one that has been balanced by tax courts in order to determine whether or not one is acting as a minister. There is some ambiguity in the determination, which can leave church leaders scratching their heads when trying to determine who is acting as a minister. One does not necessarily have to be involved in all the activities listed above in order to be considered a minister, but the more that applies the better. It is also not entirely clear how often one must engage in any of the listed activities in order to qualify as a minister.
In reality, it is often easier to approach the analysis from the opposite direction and determine which church workers are clearly not acting as ministers. For example, a paid administrative assistant is likely not acting as a minister. Further, a custodial worker is likely not acting as a minister.
Some staff roles are more difficult to determine, however. Is a children’s ministry director acting as a minister? Is a sports ministry director acting as a minister?
If a church has a question about a specific worker’s status as a minister or non-ministry employee, the church should consult a legal or tax expert for advice.
Workers who are determined to be non-ministerial employees should be treated as employees of any other business entity. Clergy housing allowances do not apply. Standard employment withholdings, including those related to social security and income taxes, do apply.
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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.
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