Housing Allowance, Social Security, Medicare

by Edna
(United States)

What if a church pays a housing allowance, withholds social security and Medicare and match both social security and Medicare? Should the church stop withholding and matching social security and Medicare?

Comments for Housing Allowance, Social Security, Medicare

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Jun 30, 2019

Do Not Withhold and Match FICA on Ministers
by: Vickey

If your employee is "classified" as a minister you should not be withholding and matching FICA. See the IRS Topic Number 417.

If you have been ... you need to amend your 941s for the current year and start treating the payroll of a minister appropriately.

Aug 12, 2019

See IRS Topic No. 417 Earnings for Clergy
by: Chuck

Edna,
Your minister might be an employee of the church, or a self-employed person. The distinction is crucial and depends entirely on how you (the employer) relate to the minister (the possible employee). IRS Topic 417 says:
"A licensed, commissioned, or ordained minister is generally the common law employee of the church, denomination, sect, or organization that employs him or her to provide ministerial services. However, there are some exceptions, such as traveling evangelists who are independent contractors (self-employed) under the common law." To me that says most clergy working for a parish or congregation are employees. Their salary is subject to the same FITW and FICA rules as other staff. However, the minister might also receive pay individually (not through the church salary system) for things such as weddings or funeral services. These earnings are taxable to the minister as a self-employed person. The church normally would not handle these transactions. If they do, then I suggest the church payroll system treat the payments as regular salary paid as a bonus, which ensures FITW and FICA is properly withheld. That is, of course, optional. We do not do that in my church.
BOTTOM LINE: know Topic 417.

Aug 13, 2019

Ministerial Wages Paid Under SECA System
by: Vickey

I respectfully disagree, Chuck. Please read the rest of Topic 417.

It states:

"The services you perform in the exercise of your ministry are generally covered by social security and Medicare under the self-employment tax system, regardless of your status under the common law."

All monies paid to a minister for services they perform in the exercise of their ministry are paid under the SECA system NOT the FICA system as "non-minister" employees.

Please read the IRS Audit Guide:
https://www.irs.gov/pub/irs-utl/ministers.pdf

...especially the first 3 pages.

"A minister, unless exempt, pays social security and Medicare taxes under the
Self-Employment Contributions Act (SECA) and is not subject to Federal Insurance
Compensation Act (FICA) taxes or income tax withholding."

If you pay your minister for "non ministerial" duties such as janitorial services... those you would pay under the FICA system.

Aug 13, 2019

Vickey is right
by: Chuck

Edna,
Vickey is generally correct. There are exceptions, but ordained clergy are required by law to pay under SECA and that means they CANNOT pay under FICA FOR THE SAME WORK. Ministerial work goes under SECA.
Some clergy are part-time and might be paid as regular employees AND also as ministers because they perform non-ministerial work. I don't think that applied to your case.
As always, read the IRS publications.

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