July 2024
Self-Employment Tax and the Minister (3-part series)
Part 1: What is Self-Employment Tax?
If I am a minister/clergy, do I have to pay self-employment taxes?
This is a very important question, and perhaps a question you have asked yourself. Whether you are a seasoned minister, or just beginning, understanding self-employment taxes is vital to your tax planning and financial health. To better assist you in this, we are providing a three-part series to highlight the main components of understanding and planning for the impact of self-employment taxes on ministerial income.
What is self-employment tax?
Simply put, self-employment tax is the tax a self-employed individual (considered to be both the employee and employer) pays to cover the employee and employer portion of Social Security contributions (12.4%) and Medicare contributions (2.9%).
Why do ministers/clergy pay self-employment tax?
Ministers/clergy are considered, by the IRS, as dual-status employees for tax purposes. If you work for a church, or some other ministerial employer, you are considered an employee for income tax purposes, and self-employed for SECA tax purposes. Sometimes, ministers/clergy are unaware of their dual-status and are surprised to learn they owe self-employment taxes. Failing to adequately plan for your self-employment tax liability will cause large, unexpected, and costly surprises when you file your tax return.
26 US Code 1402 states that “an individual who is a duly ordained, commissioned, or licensed minister of a church or a member of a religious order” is subject to self-employment tax. Generally, if you are “duly ordained, commissioned, or licensed as a minster” and you are a pastor, minister, denominational leader, missionary, evangelist, chaplain, or some other category of “minister/clergy,” you are subject to self-employment tax. However, if you have fulfilled the requirements required for IRS Form 4361, you are exempt from self-employment taxes on your ministerial income only.
Self-Employment Tax and the Minister (3-part series)
Amounts properly received through an accountable plan are not required to be reported as taxable income and are not subject to self-employment taxes. Amounts received through a non-accountable plan, such as cell phone allowances and mileage allowances that do not require the submission of bills, receipts, or mileage logs, are required to be reported as taxable income and are subject to self-employment taxes. Amounts received for salary, special offerings, bonuses, holiday gifts, etc., are required to be reported as taxable income and are subject to self-employment taxes. Amounts received for conducting weddings, funerals, special speaking events, and other honoraria-type activities are reported as taxable income and are subject to self-employment taxes. Housing allowance is not reported as taxable income but is subject to self-employment tax. This is not intended to be an exhaustive list of self-employment taxable income, rather, it is intended to provide a high-level understanding of what constitutes self-employment taxable income.
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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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