Church Withholding Social Security Tax
Question reagrding a church withholding a FICA tax from a minister's paycheck:
I have had a church ask me to print their W-2's from their information.
My question is:
They show withholding for Social Security and Medicare Tax on pastor's W-2. Can they lose their non-profit status for this and it appears they are matching it on the 941?
That is a good question.
Compensation received by ministers for services performed in the exercise of ministry is self-employment income. Therefore they should always pay Social Security under SECA instead of FICA.
Because ministers must pay Social Security tax themselves under SECA, churches should never withhold FICA tax from ministers' compensation.
However, I cannot find where there are penalties for a church withholding FICA taxes on a minister. If any of this site’s readers know where this information can be found please comment on this post.
One disadvantage of this wrong classification is he would not be eligible for a housing allowance.
At the very least, I would print out IRS Pub 517
for them to go over.
Another good article to print out for them is this article on: Social Security tax for ministers