Should I have a Social Security Allowance?

While ministers are employees for federal income tax reporting purposes, they are self-employed for Social Security purposes with respect to services they perform in the exercise of their ministry. This means that they must pay both the employee and the employer share of social security tax under the Self-Employed Contribution Act (SECA).

This “dual status” means they are not subject to withholding requirements for the employee’s share of Social Security and Medicare taxes. Instead, they pay a Self-Employment Contributions Act (SECA) tax. 

Churches are not permitted to pay the SECA tax for their ministers; however, most churches assist ministers by providing them with a Social Security Allowance of at least 50% of the SECA tax. This provides an equivalent of Social Security/Medicare (FICA) taxes that the church would pay on behalf of a non-clergy employee.

Housing Calculation Example:

Salary – $30,000
Housing/Manse – $20,000

Defined Compensation – $50,000 x .0765 = $3,825.00

Social Security Allowance – $3,825.00

Parsonage Calculation Example:

Salary – $30,000
Fair Rental Value – $12,000
Utilities – $4,500

Defined Compensation – $46,500 x .0765 = $3,557.25

Social Security Allowance – $3,557.25

If the minister resides in a church parsonage, the annual value of that benefit (fair rental value, plus all utilities) is used to calculate the defined compensation amount. 

You may have also heard other terms below which are classified the same as the Social Security Allowance above. Whether this payment is made directly to IRS, through payroll, or paid to the minister, it is always taxable income reported in box 1 of form W-2.

• FICA Allowance
• FICA off-set
• SECA Allowance
• SECA off-set

Contact Clergy Financial Resources to help you with the next steps.

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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 
Fax: (888) 876-5101
Email: clientservices@clergyfinancial.com