Do I Have to File My Earnings if a Church Pays Me?

When it comes to payroll taxes, the Internal Revenue Service generally treats churches as just another employer, particularly with respect to lay employees who handle a church’s secular affairs such as building upkeep or bookkeeping. But there are a couple of unique tax wrinkles when applying payroll taxes on the clergy.

Lay Employees

In general, churches must withhold income tax and Social Security and Medicare taxes from full- or part-time employees other than their clergy, and provide a Form W-2 at the end of the year giving total compensation and taxes withheld. Churches must provide a Form 1099-MISC to self-employed persons who performed work for the church. A church’s lay employees and self-employed workers must file tax returns. They are not exempt from taxes just because their wages are paid by a church.

Fringe Benefits

Fringe benefits such as health insurance, group life insurance or disability coverage a church provides to its employees are nontaxable to the employees. This is the same tax treatment generally accorded to fringe benefits provided to workers by non-church employers. The nontaxable status of fringe benefits applies to all church employees, whether clergy or lay employee.

Clergy

The tax situation for the clergy is more complicated. Ministers have a dual tax status. Ministers are considered employees who must pay income taxes on their salary, but they are exempt from mandatory income tax withholding. A minister can elect voluntary withholding or make quarterly estimated income tax payments. Any minister housing allowance is subtracted from his pay for income tax purposes.

Self-Employment Tax

While ministers are employees for income tax purposes, they are considered self-employed for purposes of Social Security and Medicare taxes. That means a church does not withhold these taxes from the minister’s salary. But the minister must pay self-employment tax in lieu of Social Security and Medicare taxes. The minister’s housing allowance is added back to his pay when figuring his self-employment tax.

Photo Credits

  • Buccina Studios/Photodisc/Getty Images

Zacks Investment Research

is an A+ Rated BBB

Accredited Business.