Do Church Employees Pay Taxes? What to Know

Church employees are subject to taxes, but their obligations depend on whether they are classified as a minister for tax purposes. This distinction determines how income, Social Security, and Medicare taxes are handled. The rules for non-minister staff, like administrators or custodians, mirror those in the secular workforce. Ministers, however, are subject to a unique set of regulations that alter how their income and benefits are taxed.

Taxation for Non-Minister Church Employees

For tax purposes, non-minister church employees are treated almost identically to employees in any other organization. This category includes positions like administrative assistants, secretaries, and custodians. Their wages are subject to standard federal and state income tax withholding, which the church, as the employer, is responsible for remitting.

Their taxation also involves contributions to Social Security and Medicare under the Federal Insurance Contributions Act (FICA). FICA taxes are split between the employee and the employer. The church withholds the employee’s share from their paycheck, which is 6.2% for Social Security and 1.45% for Medicare, and pays a matching amount.

In a rare exception, a church can opt out of paying the employer’s portion of FICA taxes if it has a religious objection and files Form 8274 with the IRS. If a church has this exemption, the non-minister employee is then responsible for paying the entire 15.3% FICA equivalent themselves as self-employment tax on their personal tax return.

Special Tax Rules for Ministers

Ministers operate under a “dual status” for federal tax purposes. For income tax, a minister is considered an employee of the church. For Social Security and Medicare taxes, however, a minister is always considered self-employed. The IRS defines a minister as someone duly ordained, commissioned, or licensed to conduct religious worship and perform pastoral functions.

Because they are treated as self-employed for Social Security and Medicare, ministers do not pay FICA taxes. Instead, they are subject to the Self-Employment Contributions Act (SECA) tax. The SECA tax rate is 15.3%—comprising 12.4% for Social Security and 2.9% for Medicare—and is paid entirely by the minister.

To meet their tax obligations, ministers can make quarterly estimated tax payments to the IRS using Form 1040-ES. Alternatively, a minister can enter into a voluntary withholding agreement with the church by submitting a Form W-4, allowing the church to withhold additional federal income tax to cover the SECA tax liability. Some churches provide a “SECA allowance” to help offset the minister’s tax burden, but this allowance is considered additional taxable income to the minister.

The Ministerial Housing Allowance

A provision available exclusively to qualifying ministers is the ministerial housing allowance. This allows a minister to exclude a portion of their compensation from their income for federal income tax purposes. To be valid, the allowance must be officially designated in writing by the church in a budget or contract before it is paid; a retroactive designation is not permitted.

The tax treatment of the housing allowance is twofold: it is excludable from gross income for income taxes, but it is fully subject to self-employment (SECA) tax. This means the value of the housing allowance must be added to salary when calculating SECA tax liability. This rule applies whether the minister receives a cash allowance or is provided a parsonage.

The amount of the housing allowance that can be excluded from income tax is limited. The excludable amount is the lesser of:

• The amount officially designated by the church.
• The actual housing expenses incurred by the minister.
• The fair rental value of the home, including furnishings and utilities.

For example, if a church designates $20,000 as a housing allowance, but the minister’s actual housing expenses are only $18,000, the minister can only exclude $18,000 from income tax. Ministers must maintain detailed records of their housing expenses, such as mortgage payments, rent, and utilities, to substantiate the amount they exclude, as the responsibility for this calculation lies with them.

Filing and Reporting Requirements

The filing procedures differ between ministers and non-minister employees. Non-minister employees receive a standard Form W-2 showing taxable wages and taxes withheld. They file a standard Form 1040, and their tax process is identical to that of employees in secular fields.

Ministers also receive a Form W-2 from their church, but Boxes 3 through 6, which report Social Security and Medicare wages and taxes, should be blank. The church may voluntarily report the designated housing allowance in Box 14 for informational purposes. The core of a minister’s tax filing is calculating self-employment tax on Schedule SE, which is filed with Form 1040. On Schedule SE, the minister reports their salary plus their housing allowance to determine net earnings from self-employment and calculate the SECA tax due.

To avoid a large tax bill, ministers who do not have a voluntary withholding agreement must use Form 1040-ES to make quarterly payments. A minister may apply for an exemption from SECA tax by filing Form 4361. This is an irrevocable election for those with a conscientious or religious objection to accepting public insurance benefits. The application has a strict deadline: it must be filed by the due date of the tax return for the second year in which the minister has net earnings from self-employment of at least $400.