The Unique Finances of Your Minister
You’ve probably heard that there are special tax rules for ministers. Most church leaders don’t need to be experts on ministerial compensation, but it’s important to understand the basics of how payroll and taxes for the minister differ from other employees.
Our Ministerial Compensation webpage has several FAQs to aid your understanding, as well as slides (PDF) and videorecording from our March 2017 webinar, Ministerial Compensation: Unraveling the Complexities for Lay Leaders. The first portion of the webinar explains the three special tax provisions for ministers - dual tax status, housing allowance, and withholding exemption. (Keep in mind that these provisions cost your congregation nothing relative to what they would pay for a non-ministerial employee earning the same salary.) At the bottom of this page, you'll find these handy resources: Housing Allowance Calculation Form, Compensation Worksheet, and W-2 Instructions.
Ministers’ dual tax status often causes confusion. What’s meant by “dual tax status” is that although ministers are employees for regular income tax purposes, they are considered self-employed for the purposes of paying Social Security/Medicare. Unfortunately, this causes some leaders to think that their minister is “self-employed,” like an independent contractor. This is rarely the case. (A minister who fills the pulpit or consults with your congregation on a one-time or occasional basis, with no other leadership responsibilities, can probably be considered an independent contractor.) We have a whole page of resources to help you answer the question of Employee or Independent Contractor? for any staff member.
After reviewing our resources, please do contact us if you have questions: comp [at] uua [dot] org.