First off, what’s the difference between self-employed and employed clergymen?
Self-employed individuals include those who carry out trade or business or independent contracts within the meaning of Section 1402 of the IRS code. Common law dictates that traveling evangelists who carry out missionary or evangelistic work on their own time, money and effort without bearing any church affiliation are considered self-employed clergy. Conversely, most ordained, licensed, commissioned ministers who receive salaries from their congregation are considered employees of their respective churches under common law.
While these definitions are straightforward in theory, clergymen can always accept certain responsibilities which could convert their position into either employed or self-employed for income tax purposes:
Agreeing to be employed by a congregation for a salary, even for a short period, will render you an employee with your salary considered as wages and subject to tax.
Carrying out personal tasks for certain members of the congregation for a fee (such as marriages, funerals, baptisms, etc.) will render you self-employed and subject those fees to self-employment tax.
But here’s the curveball. Unlike regular taxpayers, ministers often have a dual tax status. While they may be either employees or self-employed for income tax purposes, they are always considered self-employed in terms of Social Security tax. This means that the total amount of the following will be subject to self-employment tax:
Your W2 Salary
(+) Net Profit
(+) Housing Allowance
(-) Deductible Expenses
Can you be exempt from paying self-employment tax?
The short answer is yes. If you, as an ordained and licensed minister, have religious or conscientious objections towards receiving social security or Medicare from the government (i.e., often claimed by Christian Scientists and Amish or Mennonite clergy), you can file Form 4361 and claim your exemption. Note, this exemption cannot be filed for economic reasons or poverty, but ONLY for religious reasons. For more information and resources on clergy tax, get in touch with the experts at Landmark Tax.