In an average non-clergy job, the employer withholds an employee's federal income tax and Social Security tax from every paycheck. But clergy are both exempt from federal income tax withholding and considered self-employed for Social Security tax purposes. This means a church normally won't withhold income tax and never should withhold Social Security tax for clergy. Therefore, the minister will have to pay tax to the IRS in quarterly installments throughout the year.
See IRS Form 1040ES to determine whether you must make estimated payments for income tax throughout the year on a quarterly basis. This form states that you should calculate your estimated tax liability for the whole year. You must pay estimated tax payments if you expect to owe a certain amount that the IRS sets each year. For tax year 2014, this amount was $1,000 or more after subtracting withholding and refundable credits, and you expect the withholding and credits to be less than 90 percent of the tax on your 2014 return or 100 percent of the tax shown on your 2013 return (which must cover all 12 months) [source: IRS Form 1040ES].
You can use your previous year's tax return as a guide for estimating your tax liability. If this is the first year making quarterly payments, use Form 1040ES to help estimate your total tax liability at the beginning of the year and divide that total by four. Make a check out for this amount and submit it to the IRS by April 15. Subsequent payments are due June 15, Sept. 15 and Jan. 15. If your situation changes, and you determine mid-way through the year that you'll owe more or less than you estimated, you can make adjustments on your remaining payments. If you find at the end of the year that you've underpaid, you might have to pay a penalty.
Clergy don't have it easy when it comes to figuring out what they owe to the IRS. Yes, it is true that clergy enjoy an exceptional tax benefit in the housing allowance, but clergy have the burden of spending extra time figuring out what they owe or spending extra money on a professional tax preparer. And because there is plenty more to learn about clergy tax beyond the scope of this article, seeking the advice of a professional is probably wise.
Author's Note: Clergy Tax Guide
Figuring out one's own taxes as a normal employee and minimizing one's tax burden can be difficult considering the complexity of the tax code. But it was eye-opening for me while researching this article to realize how much more complex it can be for certain people.
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- Internal Revenue Service. "Publication 517: Social Security and Other Information for the Members of the Clergy and Religious Workers." Department of the Treasury. March 11, 2014. (Dec. 11, 2014) http://www.irs.gov/pub/irs-pdf/p517.pdf
- Internal Revenue Service. "Tax Guide for Churches, & Religious Organizations." Department of the Treasury. November 2013. (Dec. 11, 2014) http://www.irs.gov/pub/irs-pdf/p1828.pdf
- Internal Revenue Service. "Topic 417: Earnings for Clergy." Department of the Treasury. Aug. 19, 2014. (Dec. 11, 2014) http://www.irs.gov/taxtopics/tc417.html