13 Apr Should I have a Social Security Allowance (SECA)?
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
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.