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Church Withholding Social Security Tax

by Roberta
(Michigan)

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?

Thank you
Roberta

vickey's reply

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




Comments for Church Withholding Social Security Tax

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Feb 03, 2012
 independent contractor or church employee
by: Anonymous

I was hired by the church to input tithes/offering envelopes, record weekly disbursments, prepare monthly/annual budget reports and issue yearly contribution statements. I am also a member of this church.

Each year I have been issued a Form 1099-Misc instead of a Form W-2. Should I have been issued a W-2 or 1099-Misc.

I have been missclassified as an independent contractor instead of a church employee since I work for the church.
Mar 28, 2012
 Independent Contractor vs. Employee
by: M. Wainwright

Off the top of my head, I have run into this issue a few times with a handful of organizations.

You want to ask yourself two basic questions when trying to determine if you are an employee or contractor: 1.) Is your work done for the church your only source of income 2.) Are your responsibilities carried out at the church directed by someone else.

If you have to "answer" to someone at the church and get your assignments, AND, if this is your sole source of income, then you are an employee. However, if (for example) you had a bookkeeping practice where you contract with the church based on some specilized skill that you are selling the church, and they rely soley on you to self direct your responsibilities, AND you have other clients (i.e. other sources of income), then you are a contractor.

I hope this helps.

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Join in and write your own page! It's easy to do. How? Simply click here to return to Minister Employee.

If you want to DIY your payroll, I highly recommend you look at using Gusto! It is very user friendly and their support is awesome! Plus they know how to set up and maintain payrolls for churches and nonprofit organizations.

Note: I am a "partner" of Gusto, but as I have told you before ... I never recommend anything that we or our clients have not tried and love =)



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