Four Essential Year-End Tax Rules for Ministers

Year-end tax planning too often leaves new ministers and church administrators scrambling. The reason is because rules for ministers differ from other church employees.  New ministers are often caught unaware because many seminaries don’t teach students about the requirement for ministers to pay taxes quarterly. Below are the basic guidelines to remember, and how to remedy a non-compliant situation.

Tax rules for ministers

  1. Ministers are considered self-employed. Therefore, ministers must pay 15.3% in self-employment taxes on their compensation, including housing allowance, due with their annual tax return.
  2. Ministers are required to make quarterly payments for income tax and self-employment taxes. See the rules, tax rates, and worksheet on Form 1040-ES.
  3. Voluntary tax withholding is an alternative to quarterly estimated tax payments. To do this, the church and minister must have a written agreement that the church will withhold taxes, and the minister will complete a Form W-4 establishing the withholding amounts.
  4. Ministers can opt out of self-employment taxes by filing Form 4361.

Consequences of not filing properly

  • Penalties and interest are charged on taxes not paid by the due date. However, penalties may not apply if there is a reasonable cause for not filing.
  • Installment payments or an offer in compromise may be available for ministers who owe taxes, but are unable to pay.

If you would like more information regarding minister tax issues, please contact Christina Nichols, nonprofit tax specialist at Salmon Sims Thomas & Associates.