30 May Churches Can Pay Social Security Allowance to Clergy Staff
The IRS has ruled that clergy are self-employed for purposes of paying social security taxes. This means that they must pay both the employee and the employer share of social security tax under the Self-Employed Contribution Act (SECA).
Churches are prohibited from paying FICA tax for clergy but are encouraged to pay a social security allowance for their pastor, which offsets their social security burden.
Every church should assume at least 50% of its pastor’s Social Security burden by providing a Social Security Allowance to him or her. This is 7.65% of the pastor’s cash salary and housing, regardless of whether the housing is provided in the form of a housing allowance or in the form of a parsonage with utilities paid by the church. The Social Security allowance is considered taxable salary when reporting income to the IRS on W-2 form.
If a pastor resides in a church parsonage, the annual monetary value of that benefit (fair rental value, plus all utilities) is considered “taxable” for purposes of computing social security (SECA) contributions.
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