January 19, 2015

When a Minister Earns Non-Minister Wages

Question

A church has recently hired a minister who will also work 5-10 hours each week as the church's custodian. Are all of the minister's wages exempt from FICA? Are there any issues the church should consider when issuing the minister his W-2? 

Answer

The church must understand that the minister is exempt from FICA taxes only for wages he earns performing ministerial duties. 

A review of the definition of a minister is helpful. The Internal Revenue Service's Minister Audit Technique Guide states the following:

Treas. Reg. 1.1402(c)-5(b)(2) provides that service performed by a minister in the exercise of the ministry includes:
  • Ministration of sacerdotal functions;
  • Conduct of religious worship;
  • Control, conduct, and maintenance of religious organizations (including the religious boards, societies, and other integral agencies of such organizations), under the authority of a religious body consulting a church or denomination.
If the minister performs other duties for the church that are outside of ministerial duties, he should be compensated as a non-minister. Therefore, FICA taxes should be withheld from his earnings as a custodian. 

For bookkeeping sake, it may be easier for the church to issue two separate checks to the minister each pay period. One check would report the custodian earnings (with FICA taxes withheld) and the other check would report the ministerial earnings. 

When issuing the minister's W-2, the church could either issue one W-2 or issue two W-2s. If the church issues one W-2, Box 3 and Box 5 should only report the total amount of custodian earnings.

From a tax preparation perspective, two From W-2s would be preferred. 

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