MINISTER EMPLOYMENT STATUS

Can a minister choose whether to be considered an employee or self-employed?

 No, the facts and circumstances will determine a minister’s employment status.  Creating a contract or giving an individual a title or description in order to appear to be self-employed will not determine employment status – the facts and circumstances make the determination.

 What is the correct tax treatment for an employee?

 An employee should receive a W-2 and the employer should withhold and match Social Security and Medicare on his/her wages.

 Note:  A church can hire a service, a general contractor, or an individual (if the individual is in business and offers his/her services to several churches/businesses) to provide miscellaneous services (i.e. yard maintenance, janitorial duties, secretarial duties, etc.).  If a church chooses to hire an individual or church member then an employer/employee relationship has been established and proper employment forms must be completed.

 What is the correct tax treatment for a self-employed individual?

 If you pay a self-employed individual more than $600.00 (not including reimbursements), you must give the individual a 1099-MISC.

 What is the correct tax treatment for a minister of the gospel?

 An employing agency of a minister of the gospel is to treat the minister as dual-status.  This means the minister has 2 status’ and is considered both an employee and self-employed.

1)     he is an employee for federal income tax purposes and receives a W-2 and 

2)     he is self-employed for Social Security and Medicare purposes and does not have Social Security or Medicare withheld nor matched on his wages.

 What are some of the common mistakes when employing ministers of the gospel?

The most common error is for a church/mission agency to give their employed minister a 1099 as if self-employed.  This error is many times compounded by the housing allowance, expense reimbursements, and fringe benefits.  Fringe benefits are available to dual-status ministers not to self-employed individuals.  If a minister of the gospel receives a 1099 and employee fringe benefits, he is receiving wrong treatments.  These “before tax” benefits are for “dual-status” ministers who receive W-2’s.  Self-employed 1099 individuals are not entitled to employee fringe benefits.

The second most common error is for churches to withhold and match Social Security and Medicare taxes from a minister's wages.  This is further compounded when the church designates a housing allowance.  Employees who have Social Security and Medicare taxes withheld do not qualify for a housing allowance.  If a minister of the gospel has Social Security and Medicare taxes withheld, he is receiving wrong treatments.  (Click here for instructions on how to correct this error.)

For more information refer to IRS Publication 517.