Are Ministers Tax Exempt?
Mar 6, 2001
The Bottom Line It is safe to say that any income that is not being taxed should be reported and Estimated Taxes should be paid on that income quarterly.
My husband is a Southern Baptist Pastor. Many people have commented to him that he does not pay taxes. While it is true that ministers can exempt themselves out of Social Security, not all ministers do this. Ministers can only exempt out of Social Security during the first year of their first pastorate and the only reason is because they are morally opposed to government aid (Social Security). Even if they choose to exempt out of Social Security, they still pay Federal and State Taxes.
Ministers are also in a unique Tax situation. The Federal and State government consider them employees of the church, but for Social Security purposes, they are self-employed. Anyone who is or has been self-employed knows about that special blessing. Employers pay half of their employees Social Security Taxes and the employees pay the rest. Individuals who are self-employed pay 100% of their own Social Security Taxes, which is 15% percent of their income.
Since Social Security Taxes are not withheld by the employer, these Taxes are paid quarterly via Estimated Tax Payments. The amount of these Estimated Tax Payments are determined by estimating what your income will be for the next year and then estimating what the taxes would be on that amount. Estimated Taxes are paid on January 15th, April 15th, June 15th, and September 15th (these dates may be adjusted due to weekends or holidays).
There are many other situations that require an individual to pay Estimated Taxes. It is safe to say that any income that is not being taxed (Federal, State, or Social Security Taxes) should be reported and Estimated Taxes should be paid on that income quarterly. Why pay Estimated Taxes? Because of penalties! If the full amount of taxes have not been paid, there will be penalties!
I hope this review has enlightened you as to the wonderful world of Estimated Taxes.