You aren’t the only one with questions about payroll for ministers. There are many items to take into account regarding ministers’ compensation. This article will focus on social security.
Dual-status ministers are treated as self-employed individuals in the performance of ministerial services for social security purposes. Dual-status means that the minister is an employee for income reporting, fringe benefit, and expense deducting purposes and self-employed for social security purposes.
There are many different ways to take care of ministers’ compensation. Some ministers make quarterly estimated payments to the IRS. Other ministers select the option to have the church withhold their estimated amounts and submit them to the IRS for them. Other churches offer to match the ministers’ social security. Still confused? Let me explain.
Some ministers make quarterly estimated payments to the IRS.
The dual-status minister is generally required to “prepay” tax by making quarterly payments based on an estimate of the amount of tax he expects to owe for the year. The current year’s estimate is to be calculated at the time you prepare the previous year’s tax return and the first installment of ¼ of the total is due on April 15th. Other due dates are June 15th, September 15th, and January 15th. Instead of paying the final January 15th installment, you may elect to file your return early, by January 31st, and pay any tax due with the return.
Other ministers select the option to have the church withhold their estimated amounts and submit them to the IRS for them.
A withholding agreement can be made between an employer and a dual-status minister to allow the church to withhold the estimated amounts from their pay. A Form W-4 can be prepared with the amount to be withheld each pay period entered on line 6 rather than claiming any allowances on line 5. The employer should withhold enough income tax to prepay the minister’s total income tax and social security and Medicare tax liability. Form W-2 will show the amount that has been withheld in Box 2. The church is then responsible for submitting these payments.
Other churches offer to match the ministers’ social security.
Some churches may offer to pay all or part of the minister’s social security tax. When an employer agrees to provide extra payment to a dual-status minister to pay all or part of his social security tax, it must be shown as taxable salary to the minister.
Hopefully, after reading this you will have a better understanding of the different ways of handling social security. If your still confused, why not just let us take care of payroll for you. Keep checking our website for new articles!