Do Churches Have to Pay Employee Taxes?

A church’s tax-exempt status does not extend to its employees or absolve the organization of payroll tax responsibilities. Churches that pay for services are considered employers and must follow federal tax laws, including withholding and remitting taxes. Federal tax law creates a distinction between ministers and other employees, leading to different requirements for the church. The nature of an individual’s role within the church dictates which taxes are paid and by whom.

Differentiating Employee Types for Tax Purposes

For federal tax purposes, church workers are separated into two categories, which determines the church’s tax duties. The first group is “common-law employees,” which includes most non-ministerial staff like administrative assistants, janitors, and childcare workers. An individual is a common-law employee if the church has the legal right to direct and control the services they perform.

The second category is for ministers. The Internal Revenue Service (IRS) defines a minister as an individual who is ordained, commissioned, or licensed and performs specific duties like conducting religious worship, administering sacraments, and acting as a religious leader.

Misclassifying an employee can lead to incorrect tax filings and potential liabilities for both the church and the worker. The specific duties performed, not the job title, are the guide for this determination.

Tax Obligations for Non-Minister Employees

For all non-minister employees, churches have standard payroll tax responsibilities. This involves managing Federal Insurance Contributions Act (FICA) taxes, which fund Social Security and Medicare. The church must withhold the employee’s share of FICA taxes and pay a matching employer portion.

The FICA tax has two parts: a 6.2% Social Security tax on the first $176,100 of wages for 2025, and a 1.45% Medicare tax with no wage limit. The church is responsible for remitting both the withheld amount and its matching contribution to the IRS.

Churches must also handle federal income tax withholding for non-minister employees based on their Form W-4. An exception to these obligations is the Federal Unemployment Tax Act (FUTA). Organizations under Internal Revenue Code Section 501(c)(3), including most churches, are exempt from federal unemployment taxes but may still have state-level unemployment tax requirements.

Special Tax Rules for Ministers

The tax rules for ministers are different, based on a “dual status.” For federal income tax, a minister is considered an employee, but for Social Security and Medicare taxes, the IRS views a minister as self-employed. This means the church does not withhold FICA taxes from a minister’s salary or pay the employer’s matching share.

Instead, ministers are responsible for paying into Social Security and Medicare through the Self-Employment Contributions Act (SECA) tax. The minister must calculate and pay these taxes, which are at a rate of 15.3%, through quarterly estimated tax payments.

Ministers have a one-time opportunity to seek exemption from SECA taxes by filing Form 4361. This application must be based on a conscientious or religious objection to public insurance benefits and filed by the tax return due date for the second year the minister has net self-employment earnings of at least $400.

For income tax, the church should withhold federal income tax from a minister’s salary. However, the minister and church can voluntarily agree to not withhold these taxes. In that case, the minister is responsible for paying their income tax through estimated payments.

Reporting and Filing Requirements

Every employee, including ministers who opt for voluntary income tax withholding, must provide the church with a Form W-4, Employee’s Withholding Certificate. This form allows the church to determine the correct amount of federal income tax to withhold. Without a valid W-4, the church may be required to withhold at a higher, single rate.

Churches report withheld income taxes and FICA taxes for non-minister employees quarterly using Form 941, Employer’s QUARTERLY Federal Tax Return. This form reconciles wages paid, federal income tax withheld, and the FICA taxes for non-minister staff. The taxes are deposited on a monthly or semi-weekly schedule, depending on the total tax liability.

At year-end, the church provides each employee with a Form W-2, Wage and Tax Statement. For a non-minister, the W-2 shows total wages, Social Security wages, Medicare wages, and the corresponding withheld taxes.

For a minister, the W-2 reflects their dual tax status. Their salary is reported as wages in Box 1, but this amount should not include any designated housing allowance, and Boxes 3, 4, 5, and 6 (for Social Security and Medicare) are left blank. The church may report the designated housing allowance in Box 14 for informational purposes.