Minister's Tax Differences
Title: Minister's Tax Differences
Subject: Tax Laws for Ministers
Minister's Tax Differences
This information was not authored by the Editor, rather the Editor serves as a contact person. This information was provided by the office of Keith Hamilton of the Georgia Baptist Convention.
How are tax laws different for ministers? Find the answer here.
How Are Ministers Treated Differently in Tax Matters? An Introduction**
Who is a Minister? The Internal Revenue Service usually uses one of two tests to determine if a minister is a minister for tax purposes. The IRS normally uses the Wingo or Knight test.** For most Southern Baptist ministers this means the minister must be ordained and serving in the role of an ordained minister.
Employee for Federal and State Income Tax: An ordained minister is considered an employee for federal and state income tax purposes. Therefore, if the minister receives taxable income from the church, the minister must complete a W-4 and G-4. However, the tax code does allow for voluntary withholding of federal and state income tax from the minister''s taxable income. The church must abide by the wishes of the minister concerning the withholding of federal and state income tax as expressed on the minister's W-4 and G-4. If the minister is employed on a regular basis by the church and has taxable income, then the church must provide the minister a completed W-2. As a general rule, only interim ministers serving less than 9 months and evangelists are provided Form 1099.
Self-Employed for Social Security: Ordained ministers are unique in the treatment of Social Security taxes. For federal and state income tax, a minister is considered an employee of the church, but for Social Security purposes, the minister is considered self-employed. The minister must pay the self-employment tax for Social Security (currently 15.3%) on taxable income plus housing allowance and/or fair rental value of the church owned parsonage on their individual tax return. Therefore, the church cannot pay the minister''s social security tax to the government as Social Security tax. (If the church does send to the government the minister''s Social Security tax as Social Security taxes, recent experience has indicated the government will not recognize the payment and thus send the minister a tax bill for the full amount of Social Security tax. However, the minister can elect to withhold extra federal income tax withholding on his W-4 to cover what normally would have been his Social Security liability.) The church should not report Social Security wages or taxes on Form 941 or on the minister''s W-2. (About 60% of churches give their ministers a Social Security offset to help pay the Social Security self-employment tax. This Social Security offset is normally 1/2 the amount the minister will owe on their Social Security tax. If the church gives the minister Social Security offset, then this amount must be added to taxable wages as additional income.)
Eligible for Housing Allowance: Ordained ministers are eligible for a housing allowance. If the minister can prove with receipts that he has spent the amount designated as housing allowance and meet other federal guidelines, then the housing allowance amount will not be subject to federal and state income taxes. However, housing allowance is subject for the Social Security self-employment tax of 15.3%.
Salary Reduction Agreements for Church Annuity Plan: If an ordained minister reduces his salary to send extra contributions to his retirement plan at the Annuity Board of the Southern Baptist Convention, then the contribution is tax deferred for federal and state income taxes plus the Social Security self-employment tax of 15.3%.
Workers Compensation: Ministers must be counted as employees concerning fulfilling the legal requirements of the state of Georgia Worker Compensation laws.
Social Security Exemption: A newly ordained minister can opt out Social Security if they meet strict legal requirements.
Housing Allowance is Not Normally Reported on W-2: Reporting the housing allowance on the W-2 is optional in Box 14.
Retirement Income from the Church Annuity Plan Can Be Designated as a Housing Allowance in Retirement: An ordained minister can designate up to 100% of retirement income from their Church Annuity Plan as housing allowance, and if the expenditure of the housing allowance meets federal guidelines, then the housing allowance would not be subject to federal and state income taxes and the Social Security self-employment tax.
This document is intended to provide churches, pastors, and staff with current and accurate information about the subjects covered. However, such information is not intended to be sufficient for dealing with a particular legal problem, and the authors and distributors do not warrant or represent its suitability for such purpose. The reader should not rely upon this document as a substitute for independent legal consultation. **For more information on this subject and other tax matters, contact Church Financial Services at the Georgia Baptist Convention 1.800.746.4422 or www.gabaptist.org. Also, contact Church Ministry Resources at 1.800.222.1840 and order The Church & Clergy Tax Guide.
This information was not authored by the Editor, rather the Editor serves as a contact person. This information was provided by the office of Keith Hamilton of the Georgia Baptist Convention.
How are tax laws different for ministers? Find the answer here.
How Are Ministers Treated Differently in Tax Matters? An Introduction**
Who is a Minister? The Internal Revenue Service usually uses one of two tests to determine if a minister is a minister for tax purposes. The IRS normally uses the Wingo or Knight test.** For most Southern Baptist ministers this means the minister must be ordained and serving in the role of an ordained minister.
Employee for Federal and State Income Tax: An ordained minister is considered an employee for federal and state income tax purposes. Therefore, if the minister receives taxable income from the church, the minister must complete a W-4 and G-4. However, the tax code does allow for voluntary withholding of federal and state income tax from the minister''s taxable income. The church must abide by the wishes of the minister concerning the withholding of federal and state income tax as expressed on the minister's W-4 and G-4. If the minister is employed on a regular basis by the church and has taxable income, then the church must provide the minister a completed W-2. As a general rule, only interim ministers serving less than 9 months and evangelists are provided Form 1099.
Self-Employed for Social Security: Ordained ministers are unique in the treatment of Social Security taxes. For federal and state income tax, a minister is considered an employee of the church, but for Social Security purposes, the minister is considered self-employed. The minister must pay the self-employment tax for Social Security (currently 15.3%) on taxable income plus housing allowance and/or fair rental value of the church owned parsonage on their individual tax return. Therefore, the church cannot pay the minister''s social security tax to the government as Social Security tax. (If the church does send to the government the minister''s Social Security tax as Social Security taxes, recent experience has indicated the government will not recognize the payment and thus send the minister a tax bill for the full amount of Social Security tax. However, the minister can elect to withhold extra federal income tax withholding on his W-4 to cover what normally would have been his Social Security liability.) The church should not report Social Security wages or taxes on Form 941 or on the minister''s W-2. (About 60% of churches give their ministers a Social Security offset to help pay the Social Security self-employment tax. This Social Security offset is normally 1/2 the amount the minister will owe on their Social Security tax. If the church gives the minister Social Security offset, then this amount must be added to taxable wages as additional income.)
Eligible for Housing Allowance: Ordained ministers are eligible for a housing allowance. If the minister can prove with receipts that he has spent the amount designated as housing allowance and meet other federal guidelines, then the housing allowance amount will not be subject to federal and state income taxes. However, housing allowance is subject for the Social Security self-employment tax of 15.3%.
Salary Reduction Agreements for Church Annuity Plan: If an ordained minister reduces his salary to send extra contributions to his retirement plan at the Annuity Board of the Southern Baptist Convention, then the contribution is tax deferred for federal and state income taxes plus the Social Security self-employment tax of 15.3%.
Workers Compensation: Ministers must be counted as employees concerning fulfilling the legal requirements of the state of Georgia Worker Compensation laws.
Social Security Exemption: A newly ordained minister can opt out Social Security if they meet strict legal requirements.
Housing Allowance is Not Normally Reported on W-2: Reporting the housing allowance on the W-2 is optional in Box 14.
Retirement Income from the Church Annuity Plan Can Be Designated as a Housing Allowance in Retirement: An ordained minister can designate up to 100% of retirement income from their Church Annuity Plan as housing allowance, and if the expenditure of the housing allowance meets federal guidelines, then the housing allowance would not be subject to federal and state income taxes and the Social Security self-employment tax.
This document is intended to provide churches, pastors, and staff with current and accurate information about the subjects covered. However, such information is not intended to be sufficient for dealing with a particular legal problem, and the authors and distributors do not warrant or represent its suitability for such purpose. The reader should not rely upon this document as a substitute for independent legal consultation. **For more information on this subject and other tax matters, contact Church Financial Services at the Georgia Baptist Convention 1.800.746.4422 or www.gabaptist.org. Also, contact Church Ministry Resources at 1.800.222.1840 and order The Church & Clergy Tax Guide.
