Clergy Tax Issues – Vol 2 of 8: How do we classify our Pastor as W-2 or 1099-NEC (Contractor)

Clergy Tax Issues – Vol 2 of 8: How do we classify our Pastor as W-2 or 1099-NEC (Contractor)

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There are two primary questions a church must answer in determining how to classify their pastor’s status as either W-2 employee or 1099 Contractor.

1. Does the pastor qualify as a pastor per IRS regulations for ministerial tax treatment?

  • Is your pastor ordained, licensed, or commissioned, AND
  • Does your pastor perform at least some of these four functions:
    • Administering sacerdotal functions (marriages, communion, baptisms….)
    • Functioning as a religious leader in your church
    • Conducting religious worship as part of regular duties, and/or
    • Managing the church.

2. Is the pastor a W-2 employee or a 1099-Contractor?

The IRS applies a common law test to church staff and considers whether the church leadership has

  • (a) behavioral control,
  • (b) financial control, and
  • (c) an on-going, functioning relationship with the clergy.

If the answer is “yes” to these questions, the pastor is a W-2 employee.

Church

The fact is, nearly EVERY clergy member qualifies as a W-2 employee for income tax purposes and should receive a W-2 at year-end.

If you need more information or would like to discuss your church’s situation as to how to classify your pastor, contact us today and we’ll talk!

Missed part 1? You can follow the story here: Clergy Tax Issues – Vol 1 of 8: Is your Pastor a 1099 or W-2 Employee?