The Federal Insurance Contributions Act (FICA) is a U.S. law requiring a deduction from paychecks and income that goes toward the Social Security program and Medicare. Both employees and employers are responsible for sharing the FICA payments.
The church is required to pay Social Security and Medicare (FICA) taxes on all non-clergy employees. All nonprofits must withhold FICA taxes and meet the same requirements as for-profit employers by matching Social Security and Medicare withholdings. The nonprofit must also withhold federal income tax from an employee’s wages.
The tax rate for Social Security is 6.2% for the employer and 6.2% for the employee, or 12.4% total. The tax rate for Medicare is 1.45% for the employer and 1.45% for the employee, or 2.9% total.
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. Additionally, while subject to paying federal income tax, a minister is exempt from the mandatory withholding of the federal income tax. For payments into Social Security, the minister is always self-employed. This translates into the fact that a minister can never pay into the Social Security/Medicare (FICA) system the way a regular employee does through the traditional employee payment with an employer matching payment, better known as FICA/Medicare. This is defined by law under IRC Sections 1402 and 3121.
Ministers are required to pay Self-Employment (SECA) tax rather than being subject to the 7.65% Social Security and Medicare (FICA) tax withholding (IRC 3121 (b)(8)(A)). Therefore, Social Security and Medicare (FICA) taxes should not be withheld from the ministers pay. The Social Security and Medicare boxes on the ministers W-2 Form should then be left blank (boxes 3, 4, 5 and 6). Instead, ministers are responsible for paying 15.3% Self-Employment (SECA) tax through estimated payments.
Self Employed Contributions Act Tax (SECA Tax) was first imposed by the SEC Act of 1954.
Responsible persons can be held personally liable by the IRS for incorrect filings and failure to remit Federal income tax and FICA tax withholdings.
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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