Pastor Salary and the Self Employment Tax

What is the Self Employment Tax (SECA)?

Is basically what the self employed pay to fund Social Security and Medicare. The self employed pay based on net earnings but they have to pay the full 15.3%.

Dual status of Pastors

Pastors are considered self-employed and fully employed by the church. This means the IRS classifies most pastors as working for a church as an employee, so they are able to receive benefits, but they are always considered self employed related to to their ministerial services and must pay self-employment taxes.

What are some implications?

While housing allowance is not factored into what a pastor pays for federal income tax it is subject to the 15.3% self employment tax. The pastor’s “salaried” wages, meaning the portion that is not housing, is also subject to the 15.3% tax. However, churches should not withhold this tax from a pastor’s salary but rather the pastor should make these payments quarterly unless the minister has elected voluntarily withholding by submitting a W-4 to the church.

Can a Church Pay SECA for their pastors?

Since regular employees have half of the Medicare and Social Security tax paid for by their employer most churches want to provide that benefit for their pastors. That is great! BUT, keep in mind that if you decide to add half of the tax amount to your pastor that too is taxable income. Meaning it needs to be added to their W-2.