Thanks to the Tax Cuts & Jobs Act, people are paying a whole lot more attention to their tax withholdings this year. Employers had a hard time calculating withholdings with all the changes in the law and the result was far fewer people getting big tax returns (which I think is actually a good thing!) and more people owing. (Don’t get mad at the employers, though, no one really knew how it would all play out.)

So, with this renewed interest in tax withholding, I thought it would be a good time to go over how it all works for pastors. Because this is yet another area where it’s different for pastors than for everyone else. While some church employees do have to pay their taxes differently, the information in this article is only for pastors and does not apply to non-ministerial church workers.

Mandatory Withholdings

If you work a secular job, your employer withholds money from every one of your paychecks to cover federal income taxes, Medicare taxes, and Social Security taxes. They do it regardless of how you feel; you have no say in the matter. Because it’s the law.

Well, this is an area where pastors are truly above the law. Or at least they are an exception to the law. There is no mandatory withholding for pastors on those taxes. That means that your church is allowed to pay you all of the money you’ve earned, without sending some to the government first.

FICA/SECA (Payroll) Taxes

In fact, not only do they not have to withhold taxes, but churches aren’t allowed to withhold Social Security and Medicare taxes (also called FICA or payroll taxes). This is because pastors always have to pay those taxes under the SECA program (as opposed to FICA) as if they were self-employed. If a church withholds FICA taxes for a pastor, they are breaking the law and will mess up his or her records with the Social Security Administration. Neither of those are good things.

Let me say it again because there seems to be a lot of confusion about this. Ministers always pay under SECA, not FICA. You don’t have a choice in the matter, it’s the law.

Also, you don’t get to decide whether or not you want to be treated as a minister. The work you do and your ordination/licensure determine whether or not you are a minister. It is not your decision. You can’t just have your church treat you like a regular employee. It doesn’t work that way.

Federal Income Taxes  

The IRS is more flexible with income taxes. While pastors aren’t required to have income taxes withheld, you are allowed to. Why would you want your church to withhold taxes if it isn’t required? Because you have to pay the taxes yourself if you don’t.

Like the rest of us, you pastors have to pay federal income tax. And like the rest of us, if you don’t have an employer withholding those taxes on a regular basis then you have to pay quarterly estimated taxes four times a year. Either way, the government is getting your money. A lot of pastors simply find it easier to have their church handle it rather than doing it on their own.

Withholding Extra

While your church can’t withhold payroll taxes, it is common practice to have them withhold extra income taxes to cover the amount that you will owe in self-employment taxes. When you file your taxes at the end of the year, everything you owe gets lumped into one tax bill regardless of whether it is for income tax, self-employment taxes, or something else. So, if you owe $5,000 in self-employment taxes and your church withheld an extra $5,000 in federal income taxes, then it all evens out in the end and you don’t end up with a big bill on April 15.

To do this, you first need to estimate how much you will owe in taxes. And don’t forget about the housing allowance when you make your calculations. I found a great online calculator for estimating pastors’ taxes here.

The calculator will show you how much you would owe in federal, Social Security, Medicare, and state taxes each paycheck. It also gives a breakdown of how much to pay each quarter if you pay the taxes on your own. You can use the same information to adjust your withholdings with your church. Then they will withhold enough to cover your entire tax bill and you don’t have to make quarterly estimated payments.

If you’re a pastor, it’s important to understand the nuances of your tax situation, even if you find it incredibly boring. Get over it and be proactive. Taking a little bit of time to prepare at the beginning of the year can save you a huge headache and a big hit to your bank account come tax time. You’ll be glad you did.