Social Security Tax for Ministers - More Complex than It Appears

by Dan Busby

Yes, you read the title correctly.

When it comes to social security tax for ministers, it’s not easier than it appears—unfortunately, it’s much more complex and can be quite confusing for many church leaders.

But never fear! You can begin unwinding the complexity with 7 reminders below regarding the key elements of minister’s social security tax:

  1. Coping with the two types of social security.  The two types of social security are the Federal Insurance Contributions Act (FICA) and the Self-Employment Contributions Act (SECA).

Qualified ministers are subject to SECA–type social security tax in relation to their ministerial income. Individuals that are not “qualified” ministers are subject to FICA-type social security tax.

This is significant because ministers paying social security tax under SECA are responsible for the full social security tax obligation (about 15% of earnings for most pastors), rather than sharing half with the church as would be the case under FICA.

  1. Payment of social security and IRS forms.  SECA-type social security is calculated on Schedule SE—the amount due is carried forward to Form 1040, Page 2 and is paid by the minister along with federal income taxes.  FICA is deducted by a church and matched by the employer and reported to the IRS using Form 941.

It is NEVER appropriate for a church to deduct FICA-type social security tax from the compensation of a “qualified” minister—plus it results in the underpayment of income taxes by a minister.

  1. Computing SECA-type social security.  What is included in the calculation of SECA-type social security tax:
  • Ministerial compensation, form W-2, Box 1
  • Housing allowance excluded from Box 1
  • Schedule C/C-EZ “net profit”—this could relate to the fees from weddings, funerals, and special speaking
  • Fair rental value of employer-provided housing
  • Amounts erroneously omitted from Form W-2, Box 1
  • Nonaccountable expense reimbursements
  • SECA reimbursements
  1. Options for paying SECA-type social security.  The primary ways of paying SECA-type social security are:
  • Form 1040-ES—quarterly estimated tax payments on 4/15, 6/15, 9/15 and 1/15
  • Voluntary federal income tax withholding agreement—the minister asks the church to withhold enough federal income taxes to cover the SECA obligation.  The amount withheld is reflected on Form W-2, Box 2
  • Federal income tax withholding related to outside employment
  1. Employer reimbursement of SECA.  Churches often provide an allowance or offset for part or all of a minister’s SECA tax.  These amounts are fully taxable for income tax (reportable on Form W-2, Box 1) and SECA purposes. So, if a church desires to cover the entire SECA obligation, the allowance would need to be grossed up to cover the taxes.
  1. Opting out of social security.  Ministers rarely qualify to opt out of social security.  This is because there are two humongous hurdles that very few ministers can clear.  To file for the exemption from SE tax, you must, among other things:
  • Be conscientiously opposed to public insurance because of your individual religious considerations (not because of your general conscience), or you are opposed because of the principles of your religious denomination.
  • File for other than economic reasons (in other words, the fact that you don’t think social security is a good investment is beside the point).
  1. Opting back into social security.  It has been many years since Congress provided a formal window for ministers to opt back into social security after opting out.

ECFA has just released a terrific series of eBooks on the essentials of minister’s compensation issues. One of these eBooks specifically addresses the topic of social security taxes: 10 Essentials of Social Security for Ministers

And the best news: It’s absolutely free through ChurchEXCEL, ECFA’s new free subscription for pastors and church administrators. Visit ChurchEXCEL.org to learn more.


This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

Navigation


Follow @ecfa