All Ministers on Salary at Church Must Get a W-2 by January 31st

Written by Raul Rivera on Jan 15, 2009 in IRS Compliance

Should the Pastor Get a W-2 or 1099-Misc?

Some churches give their pastors and other ministers a 1099-Misc each year for their taxes.  This is not correct.  A pastor must be given a W-2.

Under the latest treasury regulations, a pastor is described as an employee for federal income tax purposes but as self employed for social security tax purposes.  What many pastor's often fail to consider is that when one files a 1040 tax return they are paying two types of taxes.  They pay Federal Income Tax and Self Employment Tax.  That makes the minister a hybrid of the tax code.  Section 6051 requires the issuance of a W-2.  However, because Section 3401 describes him/her as self employed, the church is not allowed to withhold Federal Income Tax, FICA or Medicare taxes.  That means that the minister's W-2 will also look very different. 

There is a reason why the IRS demands a W-2.  It is because under a W-2, the minister is not allowed to deduct business expenses on the Federal Income Tax portion of his/her liability except under the limiting reporting of Form 2106.  If the minister get's a 1099-Misc, he/she usually deducts 100% of his/her expenses under Schedule C and gets a lower Federal Income Tax bill.  Though many ministers do it this way, their chances of getting audited are higher and usually result in payment of back taxes plus penalties.

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Raul Rivera

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