Clergy Tax Guide

The Dual Tax Status of Ministers

Clergy can hold dual tax status, meaning they can be considered both employees of a church and also be self-employed.
Clergy can hold dual tax status, meaning they can be considered both employees of a church and also be self-employed.

Clergy can be employees with respect to federal income tax on salary from a church and also be self-employed with respect to Social Security on the income made from services in the exercise of their ministry. This is known as a dual tax status.

So when does the IRS consider a minister an "employee" of the church? The answer depends on the circumstances. The IRS explains that you are an employee "if you perform services for someone who has the legal right to control both what you do and how you do it, even if you have considerable discretion and freedom of action." (The IRS bases this on "common-law rules," which is law based on custom and legal precedent rather that legislative action.) Exceptions would include traveling evangelists or clergy who work for multiple churches, which would make them independent contractors rather than employees.

If you are a minister who is an employee of a church, make sure the church sends you a W-2 after the close of the year rather than a Form 1099, which an independent contractor would receive. However, this W-2 will not necessarily list any income tax withheld. Ministers are exempt from the requirement of income tax withholding. Instead, clergy can pay income taxes in quarterly installments throughout the year. If you make arrangements with your church, you can elect voluntary withholding. If that is the case, the church should withhold income taxes only (not Social Security taxes, which you must pay quarterly throughout the year). It is important to remember that all ministers – including those who are employees of a church – must pay Social Security tax under SECA on income from ministerial services.

Take note that clergy who qualify as employees often receive additional income in the form of fees directly from members of the congregation. This is customary when ministers preside over weddings and funerals, perform baptisms or serve as guest speakers at an event or another church. This non-salary income from such services is subject to self-employment tax for both federal income tax purposes and Social Security tax purposes [source: IRS Publication 517].