Can a Church Pay FICA for a Minister?

The tax obligations for ministers in the United States present unique rules, particularly concerning Social Security and Medicare contributions. Many individuals wonder if a church can pay FICA taxes on behalf of a minister. The answer involves understanding the specific tax classifications defined by the Internal Revenue Service (IRS) for clergy. This distinct tax treatment ensures appropriate contributions to public insurance programs.

Ministerial Tax Status for Social Security and Medicare

Ministers hold a “dual tax status” under IRS regulations, differentiating how their income is treated for federal income tax versus Social Security and Medicare taxes. For federal income tax purposes, a minister is generally considered a common-law employee of the church, similar to other church staff members. Their income may be reported on a Form W-2.

However, for Social Security and Medicare purposes, ministers are typically considered self-employed, regardless of their common-law employee status for income tax. This classification means they are subject to the Self-Employment Contributions Act (SECA) tax, rather than the Federal Insurance Contributions Act (FICA) tax. FICA taxes are Social Security and Medicare taxes paid by both employees and employers. SECA tax is the equivalent paid by self-employed individuals, covering both the employee and employer portions. This distinction for ministers is an IRS regulation, detailed in IRS Publication 517.

Church Responsibilities Regarding Minister Compensation

Due to a minister’s self-employment status for Social Security and Medicare, churches typically do not pay the employer’s share of FICA taxes for a minister, nor do they withhold the employee’s share. IRS Section 3121 generally prohibits churches from withholding Social Security and Medicare taxes from a minister’s wages.

While churches do not withhold FICA, they can withhold federal income tax from a minister’s salary if requested. Without such a request, the minister is solely responsible for making estimated income tax payments throughout the year. Churches issue a Form W-2 for income tax purposes, even though the minister is self-employed for SECA. On this W-2, Box 3 (Social Security wages) and Box 5 (Medicare wages) usually show zero for ministers subject to SECA, reflecting the absence of FICA withholding.

Another important aspect of minister compensation is the housing allowance, which can be designated by the church for a minister’s housing expenses. This allowance is excludable from the minister’s gross income for federal income tax purposes if certain conditions are met. However, this housing allowance is not excluded from the minister’s earnings when calculating their self-employment tax base.

Minister Self-Employment Tax and Reporting

Ministers are responsible for calculating and paying their self-employment tax on their net earnings from ministerial services. This calculation includes their salary, designated housing allowance, and any other fees or offerings received for ministerial duties. The self-employment tax rate is 15.3% on net earnings, which comprises 12.4% for Social Security and 2.9% for Medicare. This tax is applied to 92.35% of the minister’s net earnings from self-employment.

Since churches typically do not withhold income tax or FICA from a minister’s pay, ministers are generally required to pay estimated taxes throughout the year. These estimated payments, made using Form 1040-ES, cover both their federal income tax and their self-employment tax obligations. Payments are typically made quarterly to the IRS to avoid penalties for underpayment.

Ministers report their self-employment income and calculate their SECA tax on Schedule SE (Form 1040), Self-Employment Tax. In rare instances, certain ministers may apply for an exemption from self-employment tax for religious reasons by filing Form 4361. This exemption is only granted if the minister is conscientiously opposed to public insurance due to religious principles, and if approved, it means they will not accrue Social Security or Medicare benefits based on those earnings.