Are Ministers Considered Employees or Self-Employed?

Are Ministers Considered Employees or Self-Employed?

The answer is “both.” 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.

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.

If the minister owns or rents their home, they must pay the entire 15.3 percent self-employment tax on salary, housing, and other taxable income. If the minister lives in a parsonage, they must pay the entire 15.3 percent self-employment tax on salary, the fair rental value on the parsonage, utilities paid by the church, and other taxable income.

Many churches provide additional funds to assist their ministers in the payment of this self-employment tax. This is often called Social Security allowance, SECA allowance, or FICA offset. Whatever you name it, this amount is additional compensation reported in box 1 of form W-2.

Many churches are also unaware that section 3121(b)(8)(A) prohibits the church from withholding FICA tax (Social Security and Medicare tax) on the wages earned by a minister.

Itinerate evangelists, honoraria income, pulpit supply, speaking engagements are common examples of ministers who do not have employee status; they are entirely self-employed.

This information is provided with the understanding that Payroll Partners is not rendering legal, human resources, or other professional advice or service. Professional advice on specific issues should be sought from a lawyer, HR consultant or other professional.

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