Tax Trails - Self-Employment Income
Clergy / Christian Science
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're an employee or an independent contractor depends on all the facts and circumstances. Generally, you're an employee if the person for whom you perform services has the right to control what you do and how you do it. If you're a duly ordained, commissioned, or licensed minister of a church, you're 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're 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 as a practitioner, and members of religious orders who haven't taken a vow of poverty with respect to the exercise of duties required by your order.
EXAMPLE OF COMMON LAW: You're a minister and a church hires and pays you to perform ministerial services. You're subject to its control and are an employee under the common law. The church reports your wages on Form W-2, Wage and Tax Statement, for income tax purposes, but doesn't withhold income tax or social security or Medicare taxes. Because you're 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 that the church withhold income taxes from the wages they pay you.
If you're not considered an employee under the common law, you'll receive a Form 1099-MISC, Miscellaneous Income, instead of a Form W-2, and report your income and expenses on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship).
Whether you're an employee or self-employed under the common law, figure your self-employment tax on Schedule SE (Form 1040), Self-Employment Tax.
If you earn or receive income during the year that's not subject to withholding or you don't have enough tax withheld, you may have to pay estimated tax. If you don't pay enough tax during the year through withholding or by making estimated tax payments, you may have to pay a penalty. See Tax Topic 306 - Penalty for Underpayment of Estimated Tax.
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, and Tax Trails - Do You Have to Pay Estimated Tax?