When a church hires an employee, one of the initial decisions that must be made is whether to treat the worker as clergy, non-clergy employee or contractor. This decision may seem insignificant, but it has huge implications when it comes to payroll.
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. For payments into Social Security, the minister is always self-employed. This is an IRS regulation and not an election.
For purposes of the exclusion for the housing allowance, a minister is an individual who performs ministerial services such as sacerdotal functions, conducting religious worship, and/or controlling or maintaining a religious organization as a function of a church that exists to carry out the religious beliefs of a particular faith. In addition, the governing authority of the particular faith must have licensed, commissioned, or ordained the individual according to the requirements of the particular faith. The terms “minister” and “of the gospel” are not specific to any particular religion. Instead, the courts and IRS use them broadly to encompass the leader of worship in any religion.
In Salkov, the Tax Court defined a minister as “one who is authorized to administer the sacraments, preach, and conduct services of worship.” The court held that Congress intended for the exclusion for the housing allowance to apply to both Christian ministers and individuals who are the equivalent of Christian ministers in other religions.
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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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