February 05, 2010

Church Employees with No FICA Withholding

Question:

A new church treasurer takes over the "books" and notices that the church janitor and the church nursery provider have had no FICA tax withheld, yet have been issued Form W-2s with no FICA being withheld just as if they were ministers who are exempt from FICA tax. She understands that independent contractors are self-employed and have no FICA withholding, but she has not run into a situation where non-ministerial church employees have no FICA withheld. Can this possibly be right?

Answer:

According to IRS Publication 517:

"Churches and qualified church-controlled organizations (church organizations) that are opposed for religious reasons to the payment of social security and Medicare taxes can elect to exclude their employees from FICA coverage. If you are an employee of a church or church organization that makes this election and pays you $108.28 or more in wages during the tax year, you must pay SE tax on those wages.

"Churches and church organizations make this election by filing Form 8274."

So, it's possibly correct, if the church had applied for and been granted exempt status. The bummer is this: unlike the minister who may have the option to "opt out" of SE tax, non-ministerial church employees have no such option. They must pay the full 15.3 percent SE tax that is normally paid 50/50 by employer and employee.

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