Dual Status Ministers

[RLymanC]

It seem as thought most posts are subject to much debate when personally written, SO, this comes from BJ WORTH’S Income Tax Guide for Ministers. I'm not suggesting this should not be debated, only that the information is very accurate.

An earlier post had an error, one being that a minister is automatically exempt without filing and receiving approval of Form 4361, he must file this form.

Dual-Status Minister
Ministers employed by churches and integral agencies of churches have a dual-status treatment in the Internal Revenue Code. They are to be treated as employees for income tax reporting, and as self-employed for social security reporting.

On a dual-status minister's Form W-2, Box 3, for social security wages and Box 5, for medicare wages should be left blank.

Withholding of income tax for the dual-status minister is not required according to Sec.3401 (a) (9), it is optional.

If the dual-status minister did not file Form 4361, it is necessary for social security to be computed on Schedule SE. If a minister has filed Form 4361, "Application for Exemption from Self-Employment Tax for Ministers," and has received an approved copy, he is exempt from social security on earnings from the ministry, and needs only to indicate that by writing "Exempt—Form 4361" on the self-employment line of Form 1040, page 2.

Ministers are considered employees for income reporting, expense deducting, and fringe benefit eligibility. Unreimbursed or reimbursed without "an accountable plan," automobile, travel, and professional expenses are allowed only as miscellaneous itemized deductions on Schedule A. They are also subject to limitations: (1) meals & entertainment are reduced by 50, then combined with other miscellaneous deductions, (2) only the percentage of unreimbursed expenses spent in earning the taxable salary are allowable, and (3) they are further reduced by 2.5% of the Adjusted Gross Income.

They are not to use Sch. C to report any W-2 expenses.

The below is submitted by RlymanC

WHEN TO USE SCHECULE C:
Any personal income:
If the pastor preforms marriages and Baptisms, etc. and personally receives compensation for those services the income is reported on Sch. C with the appropriate expenses included on that form. Again, if form 4361 has been approved, no SE tax on this income.

If the pastor works outside of the church and receives a W-2, all income is subject to all
taxes. If an independnet contractor and receives a 1099-MISL this also has to go on Sch.C and is subject to all taxes.

[OldJack]

I have no disagreement with this article other than to point out it is about "Ministers employed by churches and integral agencies of churches" as stated in the first sentence. If the Minister is an employee of the church, then there is no question about the tax status and reporting in accordance with this article.

The entire article is misleading (other than a note in the last sentence that acknowledges self-employment income from other than a church) as it implies that there is no such thing as a full-time self-employed Minister which of course there are thousands that say they are. I don't know BJ Worth and his tax guide and wonder what faith the ministers he is writing a guide for.

I don't recall any tax code or reference that says a Minister has to be an employee and is not allowed to be self-employed. Its facts and circumstances the same as other professionals/trades that may or may not be employees.

[RLymanC]

Minister Tax Guide

OldJack,

BJ Worth is a female EA, ATA, CPT. She opened her business 33 years ago as Worth Tax & Financial Service. She employees 4 other tax consultant (all EA's).

Her Minister's tax guide is considered by many to be the "Bible" (no pun intended) on tax matters pertaining to ministers and lay employees.

If any readers of this post are interested in learning the many tax advantages of ministers, and how to properly prepare their taxes I would recommend this pub. it's a great and inexpensive guide.

No, I'm not affiliated, just passing on a great tax guide for the purpose for which it is intended.,

[Bees Knees]

An earlier post had an error, one being that a minister is automatically exempt without filing and receiving approval of Form 4361, he must file this form.

I believe the earlier post said that the minister treated as an employee is automatically exempt from FICA, without having to file Form 4361.

Form 4361 is an exemption from Self-Employment tax, not FICA. Employee ministers are automatically exempt from FICA because they are subject to SE tax, not FICA. It is only when the minister is trying to be exempt from SE tax that you make the election.

[scrab6170]

Ministers & Priests

Another good reference is by Wayne Martin Lenell CPA, PHD 2008 income taxes for Priests.
"An ordained minister of the United Methodist Church went to court over the issue of employment status for clergy. He reported his 1988 earnings and church-related expenses on Schedule C as self-employed independent contractor. The IRS audited him and applied the 20-factor test and reclassified this minister as an employee for Federal Income tax purposes. He toot his case to the Tac Court of the US [103 T.C. No 19, Dockett No. 14475-91]." He lost the lase the 1995 Federal Appeals court upheld the Tax Court decision.