The Benefits of a Minister's Tax Status
When deciding how much to pay a minister, the comparison between a ministry salary and a secular salary is not equal and here's why:
There are many factors you will take into account when hiring ministers for your church or evaluating your church's annual finances. Here is one financial detail that STS Consulting would like to share with you for your consideration.
Ministers of the church are employees of the church, but for tax purposes, they are considered self-employed. By having this status, they benefit because they can take advantage of the housing allowance exemption (parsonage) and not pay income taxes on that part of their taxes (as long as this amount is designated prior to paying the employee). However, this status also requires them to pay self-employment tax. This means they pay both the employer and employee portions of the self-employment tax and Medicare tax.
But, what does this mean financially for the church? Savings. Here’s an example: If a ministry couple is paid $85,000 a year, normally, an employer pays 7.65% (in this case equal to $6,502.50) in Social Security and Medicare tax for this salary. However, because the minister is considered self-employed for tax purposes, they pay that portion, saving the church that amount of money. While this is financially beneficial for the church, it does need to be taken into consideration when deciding on a salary that is economically appropriate for the couple. This consideration is equally important for any ministry staff, single or otherwise.