What Makes Clergy Taxes Unique?

One of the most distinctive features of clergy taxes is the fact that ordained ministers have a dual tax status.

For federal income taxes, ordained ministers are considered to be W-2 employees. But for Social Security and Medicare taxes, they’re considered to be self-employed. This makes taxes for ministers very different from taxes for lay church employees or other workers.

Here are some of the clergy tax differences:

1. Ministers must pay their own self-employment tax by paying estimated taxes each quarter. Although church employees, as mentioned above, they are treated as self-employed for Social Security and Medicare tax purposes.
2. Ministers may receive a Clergy Housing Allowance and/or live in a church provided parsonage. The value of both are excluded from a minister’s calculation of federal income tax. However, Housing Allowance is included when calculating the Social Security/Medicare Tax.
3. Churches cannot withhold FICA tax from a minister’s paycheck.

Ministers pay their Social Security and Medicare taxes through the SECA system instead of the FICA system that most employees are under.

• SECA is an acronym for the Self-Employment Contributions Act. It is the system that self-employed individuals use to pay their Social Security/Medicare taxes.
• FICA is an acronym for the Federal Insurance Contributions Act. It is the system that MOST employees in the United States are under. With FICA the employee and the employer each pay half of the taxes.

Unlike lay employees, the church cannot withhold half the Social Security/Medicare tax from a minister’s pay. The minister is responsible for paying their own self-employment tax. The self-employment tax consists of 12.4% for Social Security and 2.9% for Medicare, for a total of 15.3%. As a result, the minister pays the entire Social Security and Medicare Tax; unlike lay employees. To offset this burden, some churches include a Social Security/Medicare Tax Offset or SECA Allowance in a minister’s compensation package.  

Please keep in mind that this article provides a high-level look at clergy taxes. For more detailed information, please consult a tax professional or certified financial planner who understands clergy taxes. The MMBB financial planning specialists are available to  answer your questions. MMBB also provides invaluable tax tools with annual publications by Richard R. Hammer, J.D., LL.M., CPA. The 2022 Clergy Tax Return Preparation Guide for 2021 Tax Returns is available for download on the MMBB website.