Income and SECA Taxes for Clergy

There is a lot of confusion about how members of the clergy are taxed. Let’s take a look at the basics and some very common mistakes. 

There are three types of tax that any worker pays to the Federal Government: Income tax, Social Security, and Medicare taxes. Members of the clergy have a potentially confusing dual status of employee for income taxes and self-employed for Social Security and Medicare. 

Here’s how these taxes are handled for members of the clergy:

Federal Income Tax: Ministers, pastors, and other members of the clergy are required to pay Federal Income tax on their salary. They may designate a portion of their earnings as housing allowance, on which they do not pay federal income tax. This is a common and costly mistake. Be sure ministers are not marked as exempt from federal income taxes or they may face a large tax bill at the end of the year.

FICA: Churches pay FICA, [the combined tax for Social Security and Medicare], for non-clergy, i.e. administrative and program staff. For these employees, the church pays the employer portion of FICA 7.65%. The additional 7.65% employee portion of FICA is taken out of the employee’s gross pay. Churches do not pay FICA for ministers as members of the clergy are exempt from FICA.

SECA: Pastors/ministers are considered self-employed in regard to Social Security and Medicare. Therefore instead of paying FICA, they pay SECA [Self-Employment Contributions Act taxes]. Pastors/ministers are responsible for both the employer and employee portion of the tax - a total of 15.3% on salary + housing allowance. 

SECA Allowance: Some churches will offer ministers a SECA allowance to cover the employer’s portion of 7.65% of salary + housing allowance. A SECA Allowance is considered taxable income. Note that pastors/ministers will pay federal income tax on any SECA allowance.

Opting out of SECA: In rare cases, a minister may elect to opt-out of SECA altogether. If they do opt-out, they can never again become eligible for Social Security and Medicare. It is entirely up to them to invest in their future.

Paying SECA: A minister can choose not to have the church withhold anything and to file quarterly estimated taxes for the estimated SECA liability. Auxilio recommends that ministers include an additional withholding of 15.3% of salary (including any SECA allowance from the church) + housing allowance on their W-4 to cover SECA taxes owed. If the designated withholding is not enough to cover SECA taxes, pastors/ministers are required to file and pay SECA taxes quarterly.

Hopefully, that sheds some light on the basics. If you are unsure if your federal or state taxes are set up properly or if you owed taxes or got a large return and you want to adjust your extra withholding, talk to your Auxilio Partner Strategist. We can help make these adjustments to best meet your needs.