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What is the Self-employment tax and Social Security Tax? What is the Medicare Tax? Must the minister pay the tax? Must the church pay the tax? Related topics and information:
b)(6) Religious services Service performed by a duly ordained, commissioned, or licensed of a church in the exercise of his ministry generally does not constitute employment for FICA purposes. Code Section 3121(b)(8). Service performed by a minister in the exercise of his ministry generally includes the ministration of sacerdotal functions and the conduct of religious worship, and the control, conduct and maintenance of religious organizations (including the religious boards, societies, and other integral agencies of such organizations) under the authority of a religious body constituting a church or church denomination. Reg.Section 31.3121(b)(8)-1(b). Ministers. Amounts received for services performed by a duly ordained in the exercise of his ministry, or by a member of a religious order in performing the duties required by that order, does not constitute wages for income tax withholding purposes. Are all ministers treated as self-employed for social security purposes?Services that a minister performs in the exercise of his or her ministry are covered under the Self-Employment Contributions Act (SECA). That means they are exempt from social security and Medicare withholding, but would be responsible for paying self-employment tax on their earnings as an employee and on their net earnings from self-employment. There are some members of religious orders, ministers, and Christian Science practitioners who have requested and been granted exemption from self-employment tax. There are also members of religious orders who have taken a vow of poverty and ministers who are covered solely by the social security laws of another country under a social security agreement between the United States and that other country. As a minister, I previously elected, and was approved for, an exemption from social security coverage. Can I revoke this election?If you are a minister, a member of a religious order not under a vow of poverty, or a Christian Science practitioner who previously elected exemption from social security coverage that was effective for tax year 1999, you now have a limited period of time to revoke that exemption. You must file Form 2031 by April 15, 2002, or by the extended due date if you get an extension of time to file your 2001 return. Once you revoke the exemption, you can never again elect exemption from social security coverage. References:
Housing. Special rules apply to members of the clergy. Under these rules, you do not include in your income the rental value of a home (including utilities) or a housing allowance provided to you as part of your pay. The home or allowance must be provided as compensation for your duties as an ordained, licensed, or commissioned minister. However, you must include the rental value of the home, or the housing allowance as earnings from self-employment on Schedule SE (Form 1040) if you are subject to the self-employment tax. For more information, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. Members of Religious OrdersIf you are a member of a religious order who has taken a vow of poverty, how you treat earnings that you renounce and turn over to the order depends on whether your services are performed for the order. Services performed for the order. If you are performing the services as an agent of the order in the exercise of duties required by the order, do not include in your income the amounts turned over to the order. If your order directs you to perform services for another agency of the supervising church or an associated institution, you are considered to be performing the services as an agent of the order. Any wages you earn as an agent of an order that you turn over to the order are not included in your gross income. Example. You are a member of a church order and have taken a vow of poverty. You renounce any claims to your earnings and turn over to the order any salaries or wages you earn. You are a registered nurse, so your order assigns you to work in a hospital that is an associated institution of the church. However, you remain under the general direction and control of the order. You are considered to be an agent of the order and any wages you earn at the hospital that you turn over to your order are not included in your income. Services performed outside the order. If you are directed to work outside the order, your services are not an exercise of duties required by the order unless they meet both of the following requirements.
Example. Mark Brown is a member of a religious order and has taken a vow of poverty. He renounces all claims to his earnings and turns over his earnings to the order. Mark is a school teacher. He was instructed by the superiors of the order to get a job with a private tax-exempt school. Mark became an employee of the school, and, at his request, the school made the salary payments directly to the order. Because Mark is an employee of the school, he is performing services for the school rather than as an agent of the order. The wages Mark earns working for the school are included in his income. For income tax purposes, a licensed, commissioned, or ordained minister is generally treated as a common law employee of his or her church, denomination, or sect. There are, however, some exceptions such as traveling evangelists who may be treated as independent contractors. If you are an employee you are taxed on the wages you receive for performing ministerial services, and the offerings and fees you may receive for performing marriages, baptismals, or funerals. The employer will report the wages to you on Form W-2. If you itemize your deductions, you may be able to deduct certain business expenses related to your services for which you are not reimbursed. You may need to fill out Form 2106, Employee Business Expenses, and attach it to your Form 1040. See Topic 514 for information on Employee Business Expenses, and Topic 508 for information on the 2% of adjusted gross income limitation. If you are an independent contractor, use Schedule C or Schedule C-EZ Profit or Loss from Business to report these earnings and expenses, and see Topic 408 for income and business deductions for a self-employed person. The gross income of a licensed, commissioned. or ordained minister does not include the fair rental value of a home (a parsonage provided), or a housing allowance paid, as part of the minister's compensation for services performed that are ordinarily the duties of the minister. If you own your home, you may still claim deductions for mortgage interest and property taxes. If your housing allowance exceeds your actual expenses, you must include this amount as other income. A minister who is furnished a parsonage may exclude from income the fair rental value of the parsonage, including utilities. However, the amount excluded cannot be more than the reasonable pay for the minister's services. A minister who receives a housing allowance may exclude the allowance from gross income to the extent it is used to pay expenses in providing a home. Generally, those expenses include rent, mortgage payments, utilities, repairs, and other expenses directly relating to providing a home. The minister's employing organization officially designate the allowance as a housing allowance before paying it to the minister. The fair rental value of a parsonage or the housing allowance is excludable from income tax purposes. It does not apply for self-employment tax purposes. For Social Security purposes, a duly ordained, licensed or commissioned minister is self-employed. This means that your salary on Form W-2, the net profit on Schedule C or C-EZ, and your housing allowance, less your employee business expenses are subject to self-employment tax on Schedule SE, Form 1040. However, you can request an exemption from self-employment tax, if you are conscientiously opposed to public insurance because of your religious principle. You cannot request exemption solely for economic reasons. You request the exemption by filing Form 4361 with the IRS. You must file it by the due date of your income tax return (including extensions) for the second tax year in which you have self-employment net earnings of at least $400.00 from the performance of ministerial services. If you previously elected exemption from social security coverage and self-employment tax, you now have a limited period of time to revoke that exemption. Once you revoke the exemption, you can NEVER AGAIN elect exemption from social security coverage. You must file Form 2031, Revocation of Exemption From Social Security Coverage by Certain Members of the Clergy, to revoke the exemption. Special rules apply to members of religious orders who have taken a vow of poverty.
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