Minister: Employee or Non-employee

Question:

Why should a church issue Form W-2 (for employee compensation) versus filing Form 1099-MISC (for non-employee compensation)?

Answer:

1. IRS Publication 517 provides instructions for determination of a minister’s status as an employee versus a non-employee (typically called an “independent contractor”). Under the sections Ministers: Defined and Ministers: Employment Status for Other Tax Purposes, direction is provided. The Publication also references Publication 15-A and Form SS-8 for further assistance. Having served ministers now for past 25+ years as a CPA specializing in ministerial tax, I have observed only a few situations in which I believe a minister should be classified as a non-employee. The exceptions generally relate to itinerant evangelists and independent missionaries.

2. Even more importantly, as an employee a minister can enjoy several tax-free benefits not available to a non-employee:
a. health care insurance benefits
b. Health Reimbursement Arrangements (HRAs)
c. 403(b) retirement plans
d. Flexible Spending Accounts (FSAs)

Comments

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MinistryCPA - Corey A. Pfaffe, CPA, LLC

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