The United States has a “pay as you go” tax system. The IRS expects payment of income tax and other taxes throughout the year, rather than receiving a lump sum payment. For most people, this is covered by W-2 withholding, but members of the clergy are exempt from mandatory withholding.
You must make estimated payments if:
- You expect to owe at least $1,000 in tax for 2020 (This is after applying any refundable credits or withholding)
- You expect your credits and withholding will cover less than
- 90% of the tax on your 2020 return, or
- 100% of the tax on your 2019 return, or
- 110% of the tax on your 2019 return if you earned more than $150,000 jointly or $75,000 filing single or married filing separately.
This means that most active members of the clergy are going to have to make estimated payments… but there are some alternatives.
Instead of making estimated payments, some ministers find it easier to enter a voluntary withholding agreement with their church, instructing them to withhold enough to cover both the income tax liability and the self-employment tax liability. Alternatively, married-filing-jointly ministers with a high-earning spouse can ask their spouse to increase withholding increased to cover their taxes. The IRS does not particularly care if the funds come from withholding or estimated payments, so long as the total amount of tax is paid timely.
If you do make estimates, keep in mind that any 2020 federal estimated payment that was due April 15th can be postponed until July 15th with no penalty or interest due to the pandemic. Most states have also postponed first quarter estimates to July 15th, see our blog post at https://www.clergytaxnet.com/when-are-my-2019-tax-returns-due/ for exceptions.
Calculating the exact amount to withhold can be tricky. Estimated payment calculations for the next year are normally included when you file your 1040 return with Clergy Financial Resources, but CFR also offers this separately at https://www.clergytaxnet.com/services/clergy-tax-preparation/estimated-payment-support-clergy/, in case you filed with another service.
Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
For more information or if you need additional assistance, please use the contact information below.
Clergy Financial Resources
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Maple Grove, MN 55369
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