Clergy taxes are more complicated for several reasons. For example, clergy have a dual tax status, which means they are considered employees for income tax purposes; however, they are considered self-employed for employment tax purposes (e.g., Social Security and Medicare).
As a result, clergy and their employers; i.e., the church, do not pay FICA (Federal Insurance Contributions Act) taxes as other employers and employees do where the employer pays ½ of the employment taxes and the employee pays the other half.
Rather, clergy pay SECA (Self-Employed Contributions Act) taxes like other self-employed people pay, and as such, they pay both the employer’s and employee’s half of employment taxes.
The rationale behind the Social Security offset in clergy Call Agreements is to address the inequity that clergy pay 100% of their employment taxes instead of 50% as other employees do.
Another example is the clergy housing allowance. Clergy may exclude from their income the lesser of: the Fair Market Value (FMV) of a similarly furnished and situated home or apartment plus utilities, the amount of their declared housing allowance, or their actual housing expenses each year. Importantly, while this amount may be excluded from income taxes, it is not excludable from SECA taxes.
Likewise, clergy living rent-free in a church owned parsonage as part of their compensation package do not include the annual fair rental value of the parsonage as income in calculating their federal income taxes, nor is the annual fair rental value deducted from the minister’s income.
The Taxpayer Bill of Rights #3 states: The Right to Pay No More Than the Correct Amount of Tax. These free resources from the UCC Pension Boards can help clergy and/or their tax preparers understand the unusual aspects of clergy taxes so that clergy tax returns both comply with applicable tax law and show the correct amount of tax.
Rev. Dr. David Cleaver-Bartholomew is the Director of Stewardship and Donor Relations for the SNEUCC. Contact David for: Proportional Giving How to calculate proportional giving for 2021 Annual Giving/Stewardship Campaign General advice and ...