Crafting compensation packages for church pastors is a process distinctly different from setting salaries and benefits in the for-profit sector.

What is Social Security Allowance?

A Social Security allowance is an additional payment made by churches to clergy to help cover their Social Security tax burden. This allowance is often referred to as a SECA allowance because clergy pay Social Security and Medicare taxes under the Self-Employment Contributions Act (SECA) rather than the Federal Insurance Contributions Act (FICA).

Why do Clergy Receive it:

• Self-Employment Tax: Clergy are considered self-employed for Social Security purposes, meaning they pay the SECA tax, which is 15.3% of their net earnings from ministry. This rate is higher than the combined employer and employee contributions under FICA, which totals 7.65%.
• Financial Support: Many churches provide a Social Security allowance to help offset this higher tax burden. This allowance typically covers half of the SECA tax (7.65%), similar to how employers cover half of the FICA tax for regular employees.
• Taxable Income: The Social Security allowance is taxable and must be reported on the clergy’s W-2 form.

Reporting the Allowance:

• W-2 Form: When completing a W-2 for an ordained pastor who receives a salary and an additional allowance for Social Security and Medicare taxes, the salary and the SECA allowance should be included in Box 1 (Wages, Tips, and Other Compensation).

Example Calculation:

If a pastor’s salary (including housing allowance) is $50,000, the church might provide a Social Security allowance of $3,825 (which is 7.65% of $50,000).

If you need more specific advice, it might be helpful to contact Pro Advisor Support to answer your questions.

Clergy Financial Resources
Tax I Payroll I Bookkeeping I HR | Consulting
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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.

For more information or if you need additional assistance, please use the contact information below.

Clergy Financial Resources
11214 86th Avenue N.
Maple Grove, MN 55369

Tel: (888) 421-0101 
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