Clergy are defined as dual status because they are treated differently for various tax purposes under the Internal Revenue Code (IRC) and Treasury Regulations. Specifically, clergy members are considered self-employed for Social Security and Medicare taxes under the Self-Employment Contributions Act (SECA). Still, they can be regarded as employees for income tax purposes. This dual status arises from the unique nature of their work and the specific provisions in the tax code that apply to them.

Legal Reasoning and Rational

  1. Self-Employment Tax (SECA)

    Under SECA, clergy members are considered self-employed for the services they perform in the exercise of their ministry. This means they are responsible for paying the full amount of Social Security and Medicare taxes on their ministerial income. This is codified in IRC§ 1402(a)(8), which states that ministers must compute their net earnings from self-employment without regard to the exclusion for the rental value of parsonages or parsonage allowances provided after retirement.

  2. Income Tax Withholding

    For income tax purposes, clergy members can be treated as employees. This means that their employing church or religious organization can withhold federal income tax from their wages. However, their wages are not subject to Social Security and Medicare tax withholding under the Federal Insurance Contributions Act (FICA). Instead, clergy members must pay these taxes through SECA.

  3. Exemption from SECA

    Clergy members can apply for an exemption from SECA if they are conscientiously opposed to public insurance due to religious reasons. This exemption is granted under IRC§ 1402(e)and requires the filing of Form 4361. The exemption, once granted, is irrevocable and applies only to ministerial services.

  4. Ministerial Services

    Ministerial services are defined broadly to include performing sacerdotal functions, conducting religious worship, and controlling, conducting, and maintaining religious organizations. This broad definition ensures that a wide range of activities performed by clergy members are covered under SECA.

  5. Dual Status in Practice

    The dual status of clergy members means that while they are treated as self-employed for Social Security and Medicare tax purposes, they can be treated as employees for income tax purposes. This dual status allows them to benefit from certain employee-related tax provisions, such as the exclusion of the rental value of a parsonage or a housing allowance from gross income for income tax purposes under IRC§ 107[3].

Conclusion

The dual status of clergy members is a result of specific provisions in the tax code that recognize the unique nature of their work. They are considered self-employed for Social Security and Medicare tax purposes under SECA, but they can be treated as employees for income tax purposes. This dual status allows clergy members to benefit from certain tax provisions while ensuring they contribute to Social Security and Medicare through self-employment taxes.

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

Tel: (888) 421-0101 
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Email: clientservices@clergyfinancial.com

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