31 Jul Do I Have To Pay Self-Employment Taxes?
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
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.
Original content by clergyfinancial.com. 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.