Under the Internal Revenue Code, clergy members are considered self-employed individuals for tax purposes. This means that they are responsible for paying self-employment tax, which covers both Social Security and Medicare taxes. The self-employment tax rate is 15.3%, divided into 12.4% for Social Security and 2.9% for Medicare. Clergy members must pay the self-employment tax on their “net earnings from self-employment,” which is their income from their ministerial activities minus certain allowable business deductions. If a clergy member’s net earnings from self-employment exceed $400 in a tax year, they must file Schedule SE (Form 1040 or 1040-SR) along with their income tax return to report and calculate their self-employment tax liability.
Clergy Income Classification
Income earned by clergy members is classified as either:
- Self-employment income
- Wages
The classification of income determines how taxes are calculated and paid.
Self-employment Income
Self-employment income is earned by clergy members who are not considered employees of their religious organizations. These individuals are responsible for paying both the employee and employer portions of Social Security and Medicare taxes, which are known as self-employment taxes.
Wages
Wages are earned by clergy members who are considered employees of their religious organizations. These individuals have their Social Security and Medicare taxes withheld from their paychecks, and their employers pay the matching employer portion.
Table of Clergy Income Classification
| Income Type | Tax Treatment |
|—|—|
| Self-employment income | Clergy must pay both the employee and employer portions of Social Security and Medicare taxes (self-employment taxes). |
| Wages | Clergy have their Social Security and Medicare taxes withheld from their paychecks, and their employers pay the matching employer portion. |
Self-Employment Tax Applicability
The self-employment tax (SET) is a federal tax that covers Social Security and Medicare taxes for individuals who are self-employed. As a general rule, clergy members are not required to pay SET on their wages from their religious organization, provided that they meet the following requirements:
- They are ordained, commissioned, or licensed.
- They are employed in the exercise of their ministry.
- Their pay is not subject to Social Security or Medicare withholding.
If a clergy member meets all of the above requirements, their wages from their religious organization are exempt from SET. This exemption applies to all forms of wages, including salaries, bonuses, and housing allowances.
However, it is important to note that clergy members may be liable for SET on income from other sources, such as self-employment income or investment income. If a clergy member’s non-exempt income exceeds a certain threshold, they may be required to make estimated SET payments.
The following table summarizes the SET applicability rules for clergy members:
| Income Source | SET Applicability |
|---|---|
| Wages from religious organization | Exempt if requirements are met |
| Non-exempt income (e.g., self-employment, investments) | May be liable for SET if threshold is met |
Do Clergy Pay Selfemployment Tax on Income?
In general, yes, Clergy are required to pay self-employment (SE) tax on their wages, just like any other self-employed individual. However, there are some specific tax rules that apply to Clergy that may result in tax breaks or deductions.
Tax Exemptions for Clergy
There are a few specific tax breaks that may apply to Clergy wages, including:
1.
- Housing Allowance: Clergy may be eligible to receive a housing allowances that is excluded from gross income for federal income tax purposes. This allows Clergy to offset the cost of housing expenses.
2.
- Rental Value of Parsonage: The value of a parsonage provided by a church or other religious organization is typically excluded from gross income for federal income tax purposes. This benefit further reduces the taxable income of Clergy.
It’s important to note that these tax breaks are specifically related to the professional activities of Clergy and may not apply to other income sources, such as investments or rental properties.
In summary, while Clergy are generally required to pay SE tax on their wages, there are specific tax breaks and exclusions that may reduce their taxable income. It is important for Clergy to consult with a tax professional or refer to IRS publications to ensure that they are taking advantage of all applicable deductions and credits.
Reporting Requirements for Clergy Income
Clergy members are required to report their income and expenses on Form 1040, U.S. Individual Income Tax Return. Income from wages, offerings, and other sources must be reported on Schedule C, Profit or Loss from Business. Expenses related to their ministry, such as travel, office supplies, and continuing education, can be deducted on Schedule C.
In addition, clergy members must file Form 4029, Application for Exemption from Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners. This form allows certain clergy members to exempt their earnings from self-employment tax.
Eligibility for Self-Employment Tax Exemption
- Ordained ministers of churches, synagogues, or other religious organizations
- Members of religious orders who have taken vows of poverty
- Christian Science practitioners listed in the Christian Science Journal
Income Excluded from Exemption
The following income is not eligible for the self-employment tax exemption:
- Earnings from secular employment
- Honorariums or fees for performing marriages, baptisms, or other ceremonies
- Earnings from writing, lecturing, or other activities that are not part of their ministerial duties
Table of Reporting Requirements
| Clergy Member | Form 1040 | Schedule C | Form 4029 |
|---|---|---|---|
| Ordained Minister | Yes | Yes | Yes or No |
| Member of Religious Order | Yes | Yes | Yes |
| Christian Science Practitioner | Yes | Yes | Yes |