New 2025 Tax Rates and Thresholds
With the 2024 tax filing season around the corner, practitioners should also keep in mind 2025 tax numbers and rates that will impact their clients for the coming year. The…
Determining whether a minister is deemed self-employed or an employee is essential because this governs how the minister is taxed. In common law, a worker is classified as either self-employed or as an employee, and the same applies to ministers.
Ministers who are employed by a church receive “dual-status” tax treatment. For income tax reporting purposes they are considered employees. However, ministers are treated as self-employed taxpayers for social security and Medicare purposes and must pay self-employment (SE) tax on their earnings, unless they are exempt.
In contrast, ministers categorized as self-employed independent contractors under the right-to-control test may have various sources and types of SE income that are subject to SE tax.
A minister’s SE income may include the following:
- Fees and payments made to the clergy member for ministerial services
- Offerings for the performance of marriages, baptisms, funerals, and masses (but not such payments made to a church or religious organization)
- Payments received from churches or other parties for speaking engagements
- Royalties from the sale of books or the writing of articles
Amounts that are not included in net earnings from self-employment include the following:
- Offerings that others made to the church
- Amounts contributed by the church to a retirement annuity plan set up for the minister, including salary reduction contributions that are not included in gross income
- Pension payments or retirement allowances for past ministerial services
- FRV or parsonage allowance provided to a retired minister
Self-employed ministers may deduct all ordinary and necessary business expenses related to their ministerial services on Schedule C. This includes expenses incurred while working as other than a common-law employee.
If the IRS approves an SE tax exemption for a self-employed minister, the SE exemption applies to income from any activity in the exercise of a ministry.
This is a reprint from the 2019 University of Illinois Federal Tax Workbook, Volume B, Chapter 6: Special Taxpayers, available at uofi.tax/arc.
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