If you are a member of the Clergy, you may have seen the phrase “Social Security Allowance” on your W-2 or it might be a part of your compensation package. But what does that mean exactly?
To understand, we have to explain a difference between Clergy and Non-Clergy employees.
Non-clergy employees have Social Security and Medicare taxes taken out of their pay. Their employers also pay a matching portion of tax to the IRS. At the end of the year, the total of tax paid includes both an employee portion and an employer portion.
Clergy, however, do not have Social Security or Medicare taxes taken out of their pay. The Church does not pay any matching portion to the IRS, so the Minister has to pay both halves, the employee and employer portions. These are usually paid in quarterly estimates, using coupons or vouchers.
So how does this relate to a Social Security allowance?
In some cases, Churches may decide to pay half of the Social Security and Medicare taxes for the Minister, even though they don’t have to. This payment of taxes on your behalf is called a “Social Security Allowance”.
Keep in mind even though the Church is paying taxes on your behalf, that Social Security allowance IS considered taxable income and needs to be reported on your return.
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.
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