Yes. Churches do pay employee taxes, but the rules split sharply depending on who the worker is. For regular lay staff, a church withholds federal income tax and pays the employer share of Social Security and Medicare exactly like any other employer. For ordained, licensed, or commissioned ministers, the church does neither. And unlike most employers, a church owes no federal unemployment tax at all. Two special elections can shift the picture further.
What Churches Owe on Non-Minister Staff
A church secretary, custodian, childcare worker, or musician on payroll is treated the same as an employee anywhere else. The church withholds federal income tax from each paycheck and pays FICA on the wages: 6.2% for Social Security and 1.45% for Medicare from the employer, matched by the same 7.65% withheld from the employee, for a combined 15.3%.1Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
The Social Security portion applies only up to the annual wage base, which is $184,500 for 2026.2Social Security Administration. Contribution and Benefit Base Medicare has no cap. Once an employee crosses $200,000 in a calendar year, the church must also withhold an extra 0.9% Additional Medicare Tax from their wages above that line.3Internal Revenue Service. Questions and Answers for the Additional Medicare Tax
A true independent contractor is different: no withholding, no FICA. But the classification is the IRS’s call, not the church’s, and it rests on how much control the church exercises over the work, the finances of the arrangement, and the overall relationship. A guest speaker who comes in for one Sunday and invoices a flat fee looks like a contractor. A part-time office worker on set hours does not, no matter what the church calls them.
Churches Do Not Pay Federal Unemployment Tax
This is the piece that trips up new church treasurers most often. Federal law excludes services performed for a 501(c)(3) organization from the definition of “employment” for FUTA purposes.4Office of the Law Revision Counsel. 26 US Code 3306 – Definitions Churches fall inside that exemption. No Form 940, no 6.0% FUTA tax, no effective 0.6% rate.
State unemployment is a separate question. Some states let nonprofit employers, including churches, either pay state unemployment tax or reimburse the state directly for benefits their former employees actually claim. Whether a church’s former employee can collect unemployment depends on state rules, not the federal exemption.
Why Ministers Are Taxed Differently
Ordained, licensed, or commissioned ministers performing ministerial duties sit in a category of their own. For income tax purposes, they are employees of the church. But the statute defining “wages” subject to withholding specifically carves out ministerial services, so the church does not withhold federal income tax from a minister’s pay.5Office of the Law Revision Counsel. 26 US Code 3401 – Definitions A minister who wants withholding anyway can request it voluntarily on a Form W-4.6Internal Revenue Service. Topic No. 417, Earnings for Clergy Otherwise, the minister sends in quarterly estimated payments.
For Social Security and Medicare, the treatment flips entirely. All ministerial earnings are treated as self-employment income, whether or not the minister is a common-law employee. The church pays no FICA on the minister and withholds no FICA from them. Instead, the minister owes the full 15.3% Self-Employment Contributions Act (SECA) tax on those earnings, reported on Schedule SE with their personal return.7Internal Revenue Service. Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers The 12.4% Social Security portion runs up to the same $184,500 wage base; the 2.9% Medicare portion applies to all net earnings.2Social Security Administration. Contribution and Benefit Base The 0.9% Additional Medicare Tax kicks in for ministers whose combined Medicare wages and self-employment income exceed $200,000 single or $250,000 married filing jointly.3Internal Revenue Service. Questions and Answers for the Additional Medicare Tax
The Housing Allowance Trap
Section 107 of the Internal Revenue Code lets a minister exclude from gross income the rental value of a church-provided home, or a housing allowance used to provide one, up to the fair rental value including furnishings and utilities.8Office of the Law Revision Counsel. 26 US Code 107 – Rental Value of Parsonages The church has to designate the allowance amount in writing before paying it.7Internal Revenue Service. Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers
Here is the catch. The exclusion is for income tax only. Federal regulations require ministers to include the rental value or housing allowance in net earnings from self-employment.9eCFR. 26 CFR 1.1402(a)-11 – Ministers and Members of Religious Orders A minister paid a $30,000 salary plus a $20,000 housing allowance owes income tax on $30,000 but SECA on the full $50,000. Missing this is one of the most common clergy tax errors.
How a Minister Can Opt Out of SECA
A minister who is conscientiously opposed on religious grounds to accepting public insurance benefits based on ministerial earnings can apply for a permanent SECA exemption by filing Form 4361. Economic reasons do not count. Before filing, the minister has to inform the ordaining, commissioning, or licensing body of that opposition.10Internal Revenue Service. Form 4361, Application for Exemption From Self-Employment Tax
The deadline is the due date, including extensions, of the return for the second tax year in which the minister had at least $400 in net self-employment earnings with any part coming from ministerial services. The two years do not have to be consecutive.6Internal Revenue Service. Topic No. 417, Earnings for Clergy Once the IRS receives the form, it sends back a statement describing the grounds for the exemption, which the minister must sign and return within 90 days for the approval to relate back to filing.10Internal Revenue Service. Form 4361, Application for Exemption From Self-Employment Tax
The exemption is irrevocable.6Internal Revenue Service. Topic No. 417, Earnings for Clergy A minister who opts out gives up Social Security credits from ministerial earnings for life, which can sharply reduce retirement and disability benefits. Missing the filing window closes the option permanently.
When a Whole Church Opts Out of FICA
Churches and qualified church-controlled organizations that are religiously opposed to paying the employer share of Social Security and Medicare tax can elect out entirely by filing Form 8274 before the first Form 941 quarterly return would otherwise be due.11Internal Revenue Service. Elective FICA Exemption for Churches and Church-Controlled Organizations The religious opposition is not a formality. The church certifies it on the form.12Internal Revenue Service. Form 8274, Certification by Churches and Qualified Church-Controlled Organizations Electing Exemption
Once filed, the election covers every current and future non-minister employee and cannot be revoked. The church stops paying and withholding FICA. Those employees pick up the full 15.3% SECA obligation on Schedule SE, like ministers. The church still withholds federal income tax as usual. Only the Social Security and Medicare piece moves.
Most churches do not take this route. Shifting a 7.65% burden to employees who expected the split makes recruitment harder, and workers affected by the election can see their future Social Security benefits change depending on how consistently they pay SECA.
What Forms the Church Actually Files
A church with lay employees on ordinary FICA files Form 941 quarterly to report income tax withholding and FICA, and issues each employee a Form W-2 with the standard boxes completed. If the church has a Form 8274 election in place, the W-2 still reports income tax withholding but leaves the FICA boxes blank.
A minister’s W-2 shows salary and, where applicable, the designated housing allowance in Box 14. Boxes 3 and 5, for Social Security and Medicare wages, are left blank because ministers are not FICA employees.13Internal Revenue Service. General Instructions for Forms W-2 and W-3 (2026) The minister handles Social Security and Medicare on their own Schedule SE.14Internal Revenue Service. Instructions for Schedule SE
A church paying an independent contractor $2,000 or more in a year must issue Form 1099-NEC. The threshold rose from $600 to $2,000 for nonemployee compensation for 2026.15Internal Revenue Service. 2026 Publication 1099 No Form 940 is required in any of these scenarios because of the FUTA exemption.4Office of the Law Revision Counsel. 26 US Code 3306 – Definitions
Who Pays When the Taxes Do Not Get Paid
Nonprofit status does not shield church leaders from personal exposure on payroll taxes. The IRS can impose the Trust Fund Recovery Penalty on any individual who was responsible for collecting, accounting for, or depositing withheld employment taxes and willfully failed to do it. The penalty is 100% of the unpaid trust fund tax, plus interest.16Internal Revenue Service. Trust Fund Recovery Penalty
A responsible person can be a pastor, treasurer, board member, or bookkeeper, essentially anyone with authority over church finances. Willful does not mean malicious. If you knew the deposits were owed and paid the electric bill instead, the IRS treats that as willful.16Internal Revenue Service. Trust Fund Recovery Penalty More than one person can be assessed for the same shortfall. For a church running a tight budget, that is exactly the pressure that tends to produce the penalty.