Tax rules regarding ministers and religious congregations in the United States are even more convoluted than they are for everyone else. Tax laws change frequently and their interpretation is often as much an art as a science. Since the staff of the Office of Church Staff Finances (OCSF) are not qualified tax experts, Unitarian Universalist (UU) organizations are urged to consult and rely upon their own tax advisors in compensation, pension and tax matters.
The following guides on church tax issues have been found helpful:
The most basic and perhaps most confusing question about ministers and the tax law is whether ministers are self-employed or employees. The answer is that U.S. ministers have dual tax status in the eyes of the IRS.
However, religious bodies are not required to withhold income tax for “ordained, licensed, or commissioned clergy,” although they must withhold income tax on the earnings of their nonordained employees.
Ministers may opt to have their employer-congregation withhold and pay income tax and SECA for them, as is done for other employees on form 941. There is no tax benefit to this arrangement other than alleviating the minister from the quarterly paperwork of self-reporting.
The minister’s annual salary is reported in box #1 on the W-2 under “wages.” In box #2 for “tax withheld,” write the word “minister” unless tax has been withheld as for other employees.
The clergy housing allowance is not reported on form W-2, but must be reported by the minister on Schedule SE as part of the annual return Form 1040. The clergy housing allowance amount should be documented by the church Treasurer in a separate letter for the minister to attach to his or her return. The pension plan box may be checked.
Read complete instructions on how to complete W-2's (PDF) for all church staff.
Ministerial Compensation can be divided into five categories. The OCSF has separate handouts describing Professional Expenses, Clergy Housing Allowance, and the Unitarian Universalist Association (UUA) Retirement Plan.
For more information contact ocsf @ uua.org.
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Last updated on Wednesday, December 3, 2014.
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