How does being a “Minister for Tax Purposes” impact the way I report and pay taxes?
Unlike most other professions, Ministers for Tax Purposes have a dual tax status. This means for income tax purposes, the IRS classifies most ministers working for a church as employees and they Should receive a W-2 from their employer annually. For Social Security purposes:
Ministers
- Are always considered “self-employed” related to their ministerial services and must pay “self-employment” taxes.
Churches
- Should issue a W-2 to ministerial employees
- Churches that issue Form 1099 instead of a W-2 to their Ministers for Tax Purposes put these ministers at risk of an audit and reclassification by the IRS as employees of the church — potentially subjecting them to additional taxes and penalties.
- When churches correctly issue a W-2 to their ministers, various fringe benefits such as retirement contributions and paid health insurance premiums are nontaxable.
- Churches should not withhold federal income taxes from ministers’ wages — except for ministers who have elected voluntary withholding by submitting a W-4 to their church.
- Also, churches should not withhold Social Security and Medicare taxes for ministers — like it should for other employees.
Ministers
- Are responsible for paying “self-employment” taxes on their earnings.
- And ministers must remit payments quarterly to the IRS unless the minister has elected voluntary withholding to cover this by submitting a W-4 to their church.
Keeping these rules in mind, how can churches help ministers with their taxes?
- Since paying self-employment tax is a considerable additional expense for ministerial employees, churches may provide additional pay to help cover a portion of these taxes, but any such Social Security offset is taxable income to the minister and must be reported on his W-2 as income.
- As mentioned earlier, when churches correctly issue a W-2, retirement contributions and paid health insurance premiums can be nontaxable.
- A church may also establish an accountable reimbursement plan so that reimbursements for church-related business expenses such as mileage, travel, conferences and continuing education are nontaxable and non-reportable on the minister’s W-2.
Are there any exceptions?
A few ministers are self-employed for federal income tax reporting, such as some traveling evangelists (who have not incorporated their ministry). They file their income taxes as self-employed and often receive a Form 1099-NEC from different churches where they perform services.
Navigating ministerial tax issues can be complicated, but as part of GuideStone’s® mission to enhance the financial security and resilience for those who serve the Lord, we have developed resources to make it easier for you.
For more information about common tax-related questions and considerations for ministers, please visit GuideStone.org/MinisterialResources or call us Monday through Friday, from 7 a.m. to 6 p.m. CT.
We look forward to serving you as you serve the Lord.
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