Clergy Members and Religious Employees

The term “church” is used generically and not in reference to any specific religion.
The term “clergy” refers to ministers, members of religious orders, and Christian Science practitioners and readers.

Churches and other religious organizations, like many other charitable organizations, qualify for exemption from federal income tax under Section 501(c)(3) of the Internal Revenue Code; however, this tax exemption only applies to certain revenues earned by the organization. It does not apply to wages the tax-exempt organization pays its workers.

There are some special payroll tax rules for churches. They must report income paid to all workers, but responsibilities for federal employment taxes depend on whether workers are classified as clergy.

How is social security and Medicare collected for clergy and religious workers?

Two systems collect social security and Medicare taxes:

Federal Insurance Contributions Act (FICA) – employer and employee each pay half the tax
Self-Employment Contributions Act (SECA) – the self-employed person pays all taxes

A member of the clergy can have some income taxed under SECA and some income taxed under FICA. A member of the clergy can also apply for an exemption from self-employment tax.

Ministers

The IRS defines ministers as individuals who are duly ordained, commissioned, or licensed by a religious body, such as a church or church denomination. The definition of ministers includes priests, rabbis, imams, and others who have the authority to:

conduct religious worship
perform sacred functions, and
administer ordinances or sacraments according to the prescribed tenets and practices of that church or denomination.

Members of Religious Orders

Members of a religious order who have taken a vow of poverty may be covered under the Federal Insurance Contribution Act (FICA) if their order elected coverage, or they perform work outside the order that is not required by or done on behalf of the order. If neither condition applies, they are not covered under FICA and are exempt from paying self-employment taxes on earnings paid for qualified services.

Members of a religious order who have not taken a vow of poverty are exempt from FICA but are required to pay self-employment taxes unless they have an IRS-approved exemption. Again, the exemption only applies to earnings paid for qualified services.

Christian Science Practitioners and Readers

Christian Science practitioners are members in good standing of the Mother Church, The First Church of Christ, Scientist, in Boston, Massachusetts, who practice healing according to the teachings of Christian Science. Christian Science practitioners are specifically exempted from licensing by state laws.

Some Christian Science practitioners also are Christian Science teachers or lecturers. Income from teaching or lecturing is considered the same as income from their work as practitioners.

Christian Science readers are considered the same as ordained, commissioned, or licensed ministers.

Religious Workers

Religious employees are church workers who do not perform ministerial duties (often referred to as lay employees). They may include church secretaries, janitors, organists, sextons, and support staff.

Question: What are church and employee responsibilities for social security and Medicare taxes?

Occupation	Answer
Minister	Qualified services are exempt from FICA. The IRS considers ministers self-employed for social security and Medicare taxes; they must pay self-employment (SE) taxes for "qualified services." In general, qualified services are the services performed in the exercise of the ministry, such as fees for marriages, baptisms, and funerals paid directly to the minister. The payment of SE taxes is the responsibility of the self-employed individual, not the church. An exemption can be requested. To claim the exemption, a minister can certify he is opposed to paying SE taxes because he refuses to accept public insurance benefits based on religious principles. Ministers are subject to FICA taxes on any non-ministerial services performed.
Members of a religious order who have taken a vow of poverty	They may be covered under FICA if their order elected coverage, or they perform work outside the order that is not required by or done on behalf of the order. If neither condition applies, they are not covered under FICA and are exempt from paying self-employment taxes on earnings paid for qualified services.
Members of a religious order who have not taken a vow of poverty	They are required to pay self-employment taxes unless they have an IRS-approved exemption. The exemption only applies to earnings paid for qualified services.
Christian Science practitioners or readers	Earnings from services performed as a Christian Science practitioner or reader are generally subject to SECA. An exemption can be requested.
Religious workers	Wages are generally subject to FICA and not to SE tax. Churches and church organizations that are opposed to the payment of FICA for religious reasons can elect to exclude their employees from FICA coverage. An employee of a church or church organization that makes this election, and is paid $108.28 or more in wages, is required to pay SECA tax on those wages. Churches and church organizations can make this election by filing Form 8274, Certification by Churches and Qualified Church-Controlled Organizations Electing Exemption From Employer Social Security and Medicare Taxes. Churches that file Form 8274 have shifted the burden of FICA taxes to their employees, who will have to pay SECA taxes. Unlike ministers who can opt out of social security, non-ministerial employees must pay SECA if the church exemption is approved. Churches must be sure their employees understand this obligation.

Ministers, members of religious orders, and Christian Science practitioners can claim exemption from SECA tax by filing Form 4361, Application for Exemption from Social Security and Medicare Taxes and Waiver of Benefits.

Question: What are church responsibilities for federal income tax (FIT)?

Occupation	Answer
Minister	For FIT, a minister may either be an employee or self-employed. Taxability depends on whether the church has the right to direct and control the activities the minister performs. The wages paid by the church are taxable for FIT if the minister is an employee; not an independent contractor. Churches are not required to withhold FIT from ministers, but ministers can request the church withhold FIT by completing Form W-4. This can be a convenient way for ministers to manage their income tax liability during the year.
Members of a religious order who have taken a vow of poverty	Earnings may be exempt for FIT if they are received for services performed as an agent of the order or in exercise of duties required by the order or if the member renounces the pay and gives it to the order.
Members of a religious order who have not taken a vow of poverty	Earnings are subject to FIT unless the member has an IRS-approved exemption. The exemption only applies to earnings paid for qualified services.
Christian Science practitioners or readers	Earnings from services performed as a Christian Science practitioner or reader are generally subject to FIT. An exemption can be requested.
Religious workers	Earnings are subject to FIT. Churches are required to withhold FIT taxes from these employees’ wages. The employee’s FIT tax status is no different from that of a regular employee.

Question: Do churches pay Federal Unemployment Tax (FUTA)?

Occupation	Answer
All	Churches and religious organizations that qualify under Section 501(c)(3) of the Internal Revenue Code are not liable for FUTA. This exemption cannot be waived.

Question: What are church responsibilities for state taxes?

Occupation	Answer
All	Most states follow federal rules pertaining to clergy payroll, but check with your applicable state agency regarding a church’s obligations for state income tax, unemployment insurance, and disability insurance.

To code an employee as truly exempt from taxes, where their wages and tax are not reported as income, please contact your local Paychex representative for assistance.