Tax Withholdings for Ministerial Staff

Much has been written about the “dual” tax status of ministers. In very simplistic terms, ministers are viewed by the IRS as an “employee” for federal income tax purpose but as “self-employed” for Social Security purposes. This dual status creates heartburns for church treasurers as they try to determine whether they can withhold certain taxes from the minister’s salary.

The general rule is that unless the minister request withholdings, there are to be no withholdings for either federal income taxes or self-employment taxes taken out of his paycheck. In this situation, the minister is responsible for filing a quarterly return to pay all his combined tax liability.

But if the minister requests such, can the church withhold taxes from his salary just like an employee of the church? The answer is both yes and no!! The church can withhold taxes but they are not withheld in the same manner as for an employee. So how can it be accomplished?

Since the minister is treated as an employee for federal income tax purposes, he or she can enter into a “voluntary withholding” arrangement with the local church by submitting a completed W-4 form. Although not required, it is generally recommended that the minister write “voluntary” across the top of the W-4 just for emphasis.

Once the W-4 is on file, the church treasurer can then withhold income taxes from the minister’s wages. However, since ministers are “self employed” for Social Security purposes, the church does not withhold Social Security and Medicare taxes simply because the minister completed a W-4 form. To have enough withheld to cover the “self-employed” taxes, the minister must request that an additional amount of income taxes be withheld to cover their expected self-employment tax liability for the year. This is done by filling in an additional amount on line 6 of the W-4 form. The additional withholding is reported as additional income taxes, and becomes a credit that the minister can apply to self-employment taxes when preparing his or her tax return for the year.

The “voluntary withholding” process is generally a much better option for most ministers when compared to having to file quarterly returns.