Churches are required to classify each person that is hired as either a secular or clergy employee. This is a very crucial step in the hiring process. Clergy are taxed differently than secular employees and this treatment is mandated by law. It isn’t optional, so it is important to know who qualifies as secular or clergy status. Student and intern clergy should be classified as a secular employee.
Secular employees, student and intern clergy are subject to standard federal and state withholdings. The FICA tax is 7.65% withheld from the employee’s wage and 7.65% paid by the employer. Clergy are exempt from standard withholdings but required to pay SECA (15.3%) on their individual tax return. To offset the additional 7.65% from SECA, many churches provide their clergy a social security allowance of 7.65% of total compensation. This social security allowance is always taxable income.
Most secular employees have taxes withheld from their paychecks on a bi-weekly basis. However, if you are classified as clergy and received ministry income or other sources of income such as interest, dividends, or secular business income, then estimated tax payments may very well be required. The IRS requires that you pay estimated taxes if you will owe $1,000 or more by year end.
Only ordained, licensed or commissioned clergy are eligible for housing allowance on their ministerial earnings. Church custodians, student and intern clergy, secretaries and “ministerial staff” are not eligible for the housing allowance. An organization may call someone a “minister,” but the IRS may not treat that person as a minister for tax purposes.
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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