Should I Report My Social Security Taxes as an Employee or as Self-Employed?

Introduction

This attempts to explain one of the most confusing topics for  ministers: your employment status for Social Security purposes.

Executive Summary

Ministers are always considered to be self-employed for social security purposes. This is true even if they are treated as an employee for federal tax calculations. This means they pay the self-employment tax, not “social security” and “Medicare” taxes. Your employing church must treat you this way.

Lesson

This is the one provision in the tax code that has caused more confusion for ministers and church treasurers than any other, that ministers are always treated as self-employed for purposes of Social Security, even if they are employees for federal income tax reporting purposes. This is also called the "dual tax status" of ministers.

The most important consequence of this is that the ministers have to pay "self-employment tax." This is the Social Security tax that is paid by self-employed workers. It amounts to 15.3% of taxable earnings. Employers and employees split the 15.3% tax rate, with each paying 7.65%. Self-employed persons pay the entire self-employment tax. Many churches pay half, or even all, of a minister's self-employment tax. This is allowable, but all amounts paid by the church is be reported as taxable income for the minister.

Many churches withhold the employee’s share of Social Security and Medicare taxes from ministers’ paychecks, and then pay the employer’s share. They treat their minister as an employee for Social Security, which is understandable, but it is always incorrect for a church to treat a minister this way.

NOTE: As a self-employed person computes his self-employment taxes on Schedule SE of Form 1040.