Clergy Tax Issues – Vol 4 of 8: What are the disadvantages of classifying clergy as W-2 employees?

Clergy Tax Issues – Vol 4 of 8: What are the disadvantages of classifying clergy as W-2 employees?


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As mentioned in my previous blog, W-2 pastors are actually dual-status taxpayers. They are considered self-employed when it comes to the government social security and medicare system and are NOT allowed to participate in the FICCA program.

In fact, the church should NEVER withhold FICA or Medicare from their W-2 clergy payroll.  Instead, the clergy are responsible for filing Form SE with their 1040 on which they will report SECA taxes (Self-employment Compensation Act). SECA taxes serve the same function as FICA/Medicare for self-employed persons.


The SECA taxes are the same percentage of salary reduction 15.3% as the FICA/Medicare taxes. However, the big difference is that with FICA/Medicare the employee pays 7.65% and the employer pays 7.65%.  With SECA, the clergy are responsible to pay in the entire 15.3.%.  The effective rate is most likely a bit lower than this as there are some deductions the clergy can take.

SECA taxes are paid on ALL the income received by the clergy, salary and housing allowance.  Therefore, some churches choose to gross up the clergy wages by some pre-determined amount in order to help the clergy cover the portion of the tax that the employer pays in the FICA system.

Additionally, there  may be some other business deductions that are not allowed for the W-2 clergy, such as a home office.  However, remember that if the clergy also have an additional “business” outside of their church employment such as performing weddings, funerals, counseling, etc. then they would file a Schedule C, Business form which would likely cover include some of these expenses.

If you need more information or would like to discuss your church’s clergy payroll, contact us today and we’ll talk!

Please see Clergy Tax related blogs here.