Self-Employment Taxes of Clergy
The Internal Revenue Service (IRS) requires U.S. religious institutions to withhold all income taxes from the paycheck of a member of the clergy. While church employees work for and are legally employed by the religious institution, federal law prohibits churches from withholding Medicare and Social Security taxes, commonly known as self-employment taxes. Members of the clergy must file and pay self-employment tax on their own for all rendered ministerial services by filing Schedule SE with their Form 1040 tax return.
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Amounts
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According to the Social Security Administration (SSA), members of the clergy must pay a 15.3 percent self-employment tax on the first $106,800 of gross earnings and a 2.9 percent tax on any earnings in excess of $106,800 for the 2010 tax year. For the 2011 tax year, self-employment tax drops to 13.3 percent of gross earnings on the first $106,800 of gross income and 2.9 percent on additional earnings.
Estimated Payments
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Ministers, pastors and rabbis have to estimate their annual self-employment taxes and make quarterly payments to the IRS if they believe they will owe $1,000 or more for the current tax year. Failure to pay estimated tax liability can result in an underpayment penalty. As of March 2011, the first estimated payment for the 2011 tax year should take place by April 15, 2011, with the last estimated payment due by January 15, 2012. To pay estimated taxes, members of the clergy will fill out Form 1040ES and mail this form and their payment to the IRS.
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Report
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Members of the clergy must report income that's subject to self-employment tax by using the long form of Schedule SE. Church employees will input their church employment income from Form W-2 on line 5a. Taxpayers will take a deduction for half of self-employment tax on line 13 and will calculate their entire self-employment tax liability on line 12. Pastors will report their deduction on Form 1040 line 27 and will add their total tax on Form 1040 line 56. Taxpayers must submit their Form 1040 and Schedule SE to the IRS by April 18, 2011, for the 2010 tax year.
Exemption
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Some religious orders, such as the Amish, do not believe in contributing to social welfare programs and provide support to disabled and aged members of their congregation on their own. Clergy who are members of a qualifying religion do not have to contribute to Social Security and Medicare if they fill out Form 4361. According to the IRS, clergy will not have to pay self-employment taxes the second tax year after they file Form 4361 if they have net earnings of $400 or more over this period.
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