IRS has an online federal tax withholding estimator that works for most people, but
not for ordained clergy. Ordained clergy are considered employees for wage
purposes but self-employed for Social Security/Medicare purposes. As a result,
many clergy find themselves seriously underpaid and owing IRS at tax time.
Here are a few things clergy need to know about FICA or Social Security and
- Unless they have opted out of Social Security early in their career, clergy
pay all of their Social Security and Medicare whereas non-ordained
employees pay one half (which is withheld from their paychecks).
- Clergy tax returns report self-employment income and pay self-employment tax . This is the same as Social Security and Medicare.
- Clergy federal withholding and/or estimated payments need to be sufficient to cover federal income tax and self-employment tax.
In many cases the religious organizations/employer will compensate clergy for the
share of Social Security/Medicare taxes normally paid by the employer.
To avoid coming up short at the end of the year, ordained clergy should base their
withholding on federal and state withholding tables and withhold an additional
amount necessary to cover their estimated self-employment tax. Let us know if you
have questions or need help.