When, if ever, does a minister stop paying self-employment (SE) taxes? Specifically, when a minister retires and draws a retirement from a denominational system does he still continue to pay estimated taxes each year to the IRS?
The answer depends on the type of retirement payment. Amounts paid to a minister under a deferred compensation plan continue to be taxed for both income and SE tax purposes, regardless of age. Distributions from Qualified Retirement Plans (e.g., 403(b) plans and pension plans (defined benefit and defined contribution) are not SE taxable. A retired minister must contact the plan administrator to determine the nature of the plan. However, retirement plan distributions not taxed for SE purposes are generally reported on Form 1099R, while SE taxable distributions are typically reported to the minister on either Form W-2 or Form 1099-MISC.
While SE taxes may not be due on Form 1099R distributions, estimated tax payments may still be necessary if the minister anticipates owing income tax.