Are pastors self-employed or church employees? The answer is “YES”! Pastors in the U.S. have a unique dual tax status. They are considered employees for federal income tax purposes. But they are also considered self-employed, regarding their ministerial earnings, for Social Security and Medicare purposes.
So, as an employee, the pastor would receive a W-2 from the church at the end of the year to show the income they’ve received.
However, the church should not withhold FICA (payroll tax) from the pastor’s income like they would for traditional employees, because pastors pay SECA (self-employment tax) instead.
Pastors pay the SECA self-employment tax on their salary, housing allowance, and, if applicable, the rental value of church-provided housing.
There are essentially two ways for pastors to pay SECA:
- Pay quarterly estimated SECA taxes like any other self employed person would do
- Voluntarily pay SECA through the church, by asking the church to submit a specific amount to the IRS from each paycheck.
Personally, I’ve always paid my SECA through the church payroll since I became a pastor in 1998, and it has worked out very well for me.
Though I have also paid quarterly estimated payments from time to time, as I’ve received extra income.
Helpful Clergy & Church Tax and Finance Guides
Because church finances are complicated and tax laws change every year, I recommend that every church treasurer and pastor buy two key tax and finance resources every year:
The Zondervan Minister’s Tax & Financial Guide and the Zondervan Church & Nonprofit Tax & Financial Guide are both trusted resources that pastors and churches have counted on for years to save them time and money.
This easy-to-understand workbook simplifies the tax code and offers dozens of tips to reduce your tax bill.
All of the authors are tax, accounting and legal experts. Three of them, Dan Busby, John VanDrunen, and Vonna Laue, are executives with the Evangelical Council for Financial Accountability (ECFA).
For 2019, the Zondervan Minister’s Tax & Financial Guide is a helpful guide for pastors, church treasurers, business administrators, and tax preparers who assist ministers in their tax returns.
Inside, you’ll find a line-by-line explanation of the 1040 Form, as well as information on recent changes in the tax code – especially those that impact pastors the most.
It also includes sound retirement planning helps for pastors, compensation planning guidance, and ways to maximize business expense reimbursements.
And the 2019 Zondervan Church & Nonprofit Tax & Financial Guide is now available to help church and nonprofit leaders navigate through tax and financial issues involved with starting or running a church or ministry.
Let’s face it, ministers have tax situations that are more complicated than most Americans, but these Zondervan tax guides can help make a pastor’s taxes a lot less taxing!
This article was originally published on March 22, 2012, and updated on February 20, 2019.
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