Ministers who are considered ministers for tax purposes hold a unique position in the tax world. They are always self-employed for social security, which means they are responsible for the full 15.3 percent SECA tax and the church cannot send that tax money to the IRS. They are almost always employees for federal and state taxes; therefore, they receive a W-2 from the church. This dual tax status is often very confusing to ministers and the churches they serve. Some accountants and CPAs who do not understand this unique tax status of ministers and often give ministers and churches incorrect information.
Ministers are also exempt from federal and state withholding; therefore, most ministers file quarterly. Ministers may request voluntary withholding by the employing church, but they must complete a W-4 and indicate how much tax money for the church to withhold and send to the IRS. The church should never send social security tax dollars to the IRS.
Unfortunately, many churches use the “lump sum” pay package approach to compensate their staff. A “lump sum” pay package means the church identifies the total pay and then invites the employee to indicate how they wish to receive the money. Please note the following “dangers” inherit in the lump sum approach:
- A lump sum is misleading to the staff person and the congregation
- Staff may choose cash over insurance protection and retirement participation
- Staff may pay unnecessary taxes
- Church may incur financial burden
- Depending on how it is structured and administered it may not meet the IRS tax code
For important information related to ministers’ taxes please note the following links:
Ministers' Tax Issues - this brochure explains the various tax issues unique to ministers
Ministers' Tax Guide - detailed tax information including federal reporting requirements for churches
Ministers' Housing Allowance - churches are able to designate a portion of the minister’s salary as a housing allowance per specific IRS guidelines
Financial Checklist for Ministers - this brochure highlights areas for ministers to be informed concerning compensation
2010 Compensation Survey - this survey assists ministers and lay leaders as they evaluate equitable compensation for staff
2010 IRS Standard Mileage Reimbursement Rate - stay up to date with the current IRS Standard Mileage Reimbursement Rate for ministry-related expenses
