Dual Tax Status for Pastors

Did You Know?

Prior to the mid-1980s, church pastors and clergy were considered self-employed. Today the IRS declares pastors employees of the church, but they now have a mandated dual tax status. Therefore, a pastor has the status of an employee of the church for federal income tax purposes, but a status of self-employed for Social Security and Medicare purposes.

Internal Revenue Service Publication 517, Social Security for Members of the Clergy and Religious Workers, states the following regarding pastors:

You are considered a self-employed individual in performing…ministerial services for social security purposes. However, because of common law rules…you may be considered an employee for other tax purposes.

Also, under common law rules:

You are an employee if your employer has the legal right to control both what you do and how you do it, even if you have considerable discretion and freedom of action.

Minister Classification

To be classified as a clergy member (minister, pastor etc.) for this special dual-status tax purpose, pastors should meet the following criteria:

1. Ordained or licensed
2. Administer church sacraments: wedding, funerals, baptisms, communion, etc.
3. Considered a religious leader by their church
4. Conduct religious worship
5. Assume church management responsibilities

Federal Income Tax Withholding

The IRS doesn’t require clergy members to withhold federal income tax from their paychecks. Pastors must still pay federal income tax on their base annual salary. But their actual tax liability will depend on marital status, total household income, deductions for interest payments on their home (if they own it), the number of dependent children, and other tax deductions and tax credits allowed by federal income tax laws.

Social Security And Medicare

Different systems collect Social Security and Medicare taxes. Under the Self-Employment Contributions Act (SECA), the self-employed person pays all the taxes. Under the Insurance Contributions Act (FICA), the employee and the employer each pay half of the taxes. Ultimately, no earnings are subject to both systems.

A church cannot withhold and match Social Security and Medicare taxes (FICA) from a pastor’s wages. Pastors pay their Social Security and Medicare taxes under the SECA system.

How Does A Pastor Pay Taxes?

Pastors have the following options for paying taxes during the year:

• The church treasurer can withhold enough Federal income tax (FIT) to cover both the FIT and Social Security/Medicare taxes (only with permission from the minister).
• The church treasurer can withhold FIT and the minister can file Social Security/Medicare taxes quarterly on Form 1040-ES (only with permission from the minister).
• The minister can file quarterly on 1040-ES for all taxes. Prepaying state taxes by withholding or quarterly estimates may also be required.

Learn more about the IRS’ tax classification for pastors and other clergy members on the IRS website.