What You Need to Know About Tax Reporting

Ministers have a dual tax status. For federal reporting purposes they are considered to be W-2 employees, but for Social Security/Medicare taxes they are considered to be self-employed. The IRS instructs employers to use Form W-2 to report an employee’s taxable income from a church or church related employer, not Form 1099-MISC.  

• In a typical job, your employer pays half of your Social Security and Medicare taxes, and you pay the other half. This employer-employee set-up is the most common tax scenario in the business world.
• People who are self-employed, however, have to cover the entire amount on their own. That’s because they basically serve as both employer and employee.
• If you’re an ordained minister who works for a church, you actually have a dual tax status which means:
  • For federal income taxes, you’re considered an employee of the church and your tax deduction shows up on your paycheck.
  • For Social Security and Medicare, however, you’re classified as self-employed—and the church cannot pay those taxes for you.
  • What your church can do is give you an allowance to help you “offset” the added cost of paying those taxes on your own—hence the terms Social Security and Medicare tax offset.
  • That extra offset counts as income and must be reported to the IRS.