Clergy Taxes and Why They’re Different

Tax preparation for clergy members is a little different than it is for other workers. While employees in government or private jobs have Medicare, Social Security and income tax withheld, it is forbidden by law to withhold Social Security and Medicare taxes from a clergy member’s wages.

There are several requirements that must be met for the special clergy rules to apply. The minister must be licensed or ordained and have some managerial duties with a church or other house of worship. He or she must lead worship programs and have a leadership role. The minister also has to perform traditional functions like officiating at weddings, baptisms and funerals. If a minister meets these requirements, then the special rules for clergy taxes apply.

It is illegal for a church to withhold Social Security taxes for a minister. Ministers are responsible for paying the Social Security and Medicare taxes themselves. Self-employment taxes for Social Security are 15.3 percent. The value of housing or a housing allowance is counted as income for Social Security. If the clergy member receives a housing allowance or lives in a church-supplied domicile, the value is not considered as income for calculating income tax. A tax preperation professional can explain further.

Income tax can be withheld by the church if the minister is considered an employee. However, the clergy member must consent to withholding by filing an IRS Form W-4. Tax services like withholding funds are allowed as long as the minister authorizes it. However, Social Security tax can never be withheld.

The clergy member can use excess funds withheld for income tax to pay Social Security taxes. Taxes for Social Security can also be paid on quarterly installments. A minister can opt out of the Social Security system. An IRS Form 4361 must be filed by the second year he or she earns more than $400 as a clergy member. Income tax services can supply this form. Only actual earnings from clergy work can be excluded. If the IRS approves the application, it is irrevocable.

The important thing to remember about clergy taxes is that all clergy members are considered self-employed for Social Security and Medicare purposes. Those who are employed by a church are allowed to have funds withheld to pay income taxes, however. Tax services who assist ministers with filing taxes must understand these differences to avoid later difficulties. With these special rules in place, it is always a good idea to hire a tax preperation specialist who understands the idiosyncrasies of clergy taxes.