Clergy Tax and Social Security Tax – Q&A From Pastors and Church Treasurers

June 30, 2009 by  Filed under: Taxes 

Question: Is a 1099 or W-2 is appropriate for a non-employee pastor?

Answer: If your pastor is a non-employee (you do not withhold income tax from his paycheck and send to the IRS) then you would have to give him a 1099MISC. A W-2 is only for employees.

Question: I have been a full time Pastor for about 2 years now. I recently realized that I have not paid SS o rMedicare since going into the ministry full time. I’ve had our financial secretary keep out $45 out of my weekly paychecks for the federal tax, but I did not realize that I was responsible for the SS and Medicare as a self employer!! Help!! I really am at a loss as to what to do because I want to have that for my retirement. I do have 10 years of working and paying SS and Medicare prior to going into ministry full time. Any direction in where I need to go??

Answer: First of all, if you filed on your ministry income for the last 3 years, you probably paid a self-employment tax. That is your Social Security and Medicare.

I don’t know what your weekly pay or dependents are so I cannot tell you if $45 is sufficient or not. You will pay about 15% of your wage for your self-employment tax(SS and Medicare) and your income tax will depend on your filing status and total income level.

Question: I can’t seem to find any answers to my circumstance. I am a pastor who has a full time job on the side to support my household right now while the church is starting up. I was allotted a housing allowance and I also was approved from SE tax on form 4361 against allowance. The IRS told me all I need to do is write “exempt 4361” on line 58 of 1040. I want to continue to file online but am not sure I can for that one reason of not being able to write that in on line 58. Can you tell me if this is the case or not? Also, this housing allowance doesn’t effect my EIC does it?

Answer: When you file online…there is a place that asks you if you are exempt from SE tax. I have not filed online for a minister who is exempt. But in my tax prep software…there is a place that asks you that…so it should be the same online.

Your housing allowance will affect your EIC. See page 12 in the IRS’s Publication 596 Earned Income Credit (EIC)

Question: Can I opt into social security again now? I have been in the country for 6 years and have just become a citizen.

When I arrived in the USA to pastor a church the church board informed me to opt out of social security, which I did, what do I know?

Answer: Many years ago, congress made a provision in the Tax Reform Act of 1986 for a brief “window of opportunity” to be opened for ministers to opt back into Social Security without having to pay the back taxes. That “window of opportunity” closed on April 15, 1988.

The Work Incentives Improvement Act of 1999 provided another “window of opportunity” to opt back into Social Security without having to pay the back taxes. This two-year window closed April 15, 2002.-

The Board of Pensions office is not aware of any formal provision that now exists to allow ministers to revoke previous exemptions and “opt back into” Social Security. That is not to say they won’t…you will just have to watch and be aware if and when they do.

You could contact a professional tax adviser to analyze your unique situation and determine if there is any course of action available for you to opt back in.

You could also just find a safe IRA to invest your money in. Social security is roughly 15% of your gross wages, so if you could put that much in a retirement account it would help a little.

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