Ministers/SECA
This information applies to our partners who are licensed, commissioned, or ordained ministers.
First and foremost, we always want to remind you to consult a tax professional before making any tax-related decisions as we are not acting in that capacity.
However, we sometimes have partners who are wanting to understand more in this area. So, here is some information that might be helpful:
You are welcome to update your W-4 at any point and in whichever way you determine best.
Because ministers are always considered dual-status (self-employed and employed), ministers have to deal with the Self-Employed Contributions Act (SECA).
SECA and FICA are taxes for Social security and Medicare.
An “employed” individual only pays the 7.65% as FICA.
SECA status makes a person pay the 7.65% as the “employer” and the 7.65% as the “employee.”
SECA tax applies to BOTH Regular wages AND Housing Allowance wages, so full gross wages.
Housing Allowances ONLY save you on federal income tax, but that’s not what we are covering here.
Because ministers fall into the SECA category, as self-employed, the employer/Equipt is unable to withhold for this category.
Typically, this means ministers must make regular SECA payments on their own behalf or they could incur late payment penalties.
However:
One thing that a lot of SECA folks do is overfund federal withholdings (withhold too much), which at tax time (on the yearly tax return) carries over to fund SECA.
Here is the IRS site for Clergy earnings.
If a person wanted to overfund his/her federal taxes for their SECA portion, this is something they might consider:
They could complete a new W-4. On Step 4c “Extra withholding,” They could multiply their full salary by .153 (7.65 % +7.65%) and then divide that number by 24 (the number of pay periods in a year) and enter this amount on Step 4c.
Because of this W-4 adjustment, they would not usually find it necessary to make regular payments for SECA on their own.
They also might consider adjusting down Bullet 1 (above) if they usually make these regular payments AND they receive a regular larger annual tax refund.
Please remember, this information is for general purposes only and your tax professional is the person who should guide all of your tax decisions.