Tax Trails - Self-Employment Income
Generally, ministers, members of religious orders, and Christian Science practitioners are considered self-employed for social security and Medicare tax purposes. However, you may still be an employee under the common law and treated as such for purposes of income tax withholding or retirement plans.
COMMON LAW - Under the common law, whether you are an employee depends on all the facts and circumstances. Generally, you are an employee if the person for whom you perform services has the right to control what you do and how you do it, even if you have considerable discretion and freedom of action.
However, for social security and Medicare tax purposes, duly ordained, commissioned or licensed ministers of a church are covered under the self-employment tax provisions for services performed in your capacity as a minister, unless you requested and received an exemption from the IRS. This is true whether you are an employee or self-employed under the common law.
The self-employment coverage and exemption rules also apply to Christian Science practitioners with respect to services performed in your capacity as a practitioner, and members of religious orders who have not taken a vow of poverty with respect to the exercise of duties required by your order.
EXAMPLE OF COMMON LAW: You are a minister and a church hires and pays you to perform ministerial services. You are subject to its control and are an employee under the common law. Your wages are reported on Form W-2 (.pdf), Wage and Tax Statement, for income tax purposes, but no income tax or social security or Medicare taxes are withheld. Because you are treated as self-employed for social security and Medicare tax purposes, you must pay self-employment tax on those wages unless you request and receive an exemption from these taxes from the IRS. You can also request your church withhold income taxes from the wages they pay you.
If you are not considered an employee under the common law, you will receive a Form 1099-MISC (.pdf), Miscellaneous Income, instead of a Form W-2, and report your income and expenses on Schedule C (Form 1040) (.pdf), Profit or Loss From Business.
Whether you are an employee or self-employed under the common law, figure your self-employment tax on Schedule SE (Form 1040) (.pdf), Self-Employment Tax.
If you earn or receive income during the year that is not subject to withholding or you do not have enough tax withheld, you may have to pay estimated tax. If you do not pay enough tax during the year through withholding or by making estimated tax payments, you may have to pay a penalty.
For more information about taxes and the clergy, refer to Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. For more information on estimated tax, refer to Chapter 2 of Publication 505, Tax Withholding and Estimated Tax.