Do Churches Pay Employee Taxes? FICA, SECA, and Filings

Yes. Churches do pay employee taxes, but the rules split sharply between ministers and everyone else on the payroll. For non-minister staff, a church withholds federal income tax and pays the employer share of Social Security and Medicare (FICA), just like any other employer. For ministers, the church generally withholds nothing automatically, and the minister pays self-employment tax on their own. Churches are also exempt from federal unemployment tax. Two special elections can shift who pays FICA or SECA, and unpaid payroll taxes can land on church leaders personally.

What a Church Owes on Non-Minister Staff

A secretary, custodian, children’s ministry director, worship leader who isn’t ordained, or any other lay employee is treated the same as an employee at a for-profit business. The church withholds federal income tax from each paycheck and pays FICA.

The combined FICA rate is 15.3% of wages, split evenly. The church pays 7.65% (6.2% Social Security plus 1.45% Medicare), and the employee pays a matching 7.65% through payroll withholding.¹ The Social Security portion applies only up to the annual wage base, which is $184,500 for 2026.² Medicare has no cap. Once an employee crosses $200,000 in a calendar year, the church must withhold an additional 0.9% Medicare tax from that employee’s wages.³

The church deposits the withheld amounts on a schedule set by its total tax liability and reports them quarterly on Form 941.

Ministers Are Taxed Differently

Ordained, licensed, or commissioned ministers performing ministerial duties sit in a category the tax code calls dual status. For income tax purposes they are employees of the church. For Social Security and Medicare they are self-employed.

That has two practical effects. First, the church is not required to withhold federal income tax from a minister’s paycheck. The statute defining “wages” subject to withholding specifically excludes services performed by a minister in the exercise of ministry.⁴ A minister who prefers regular withholding can request it voluntarily on Form W-4.⁵ Otherwise the minister owes quarterly estimated tax.

Second, the church does not pay or withhold FICA on the minister’s compensation. Instead, the minister pays the full 15.3% self-employment tax (SECA) on ministerial earnings by filing Schedule SE with their personal return.⁶ The 12.4% Social Security portion caps at the same $184,500 wage base; the 2.9% Medicare portion applies to everything.²

Housing Allowance Doesn’t Reduce Self-Employment Tax

A minister’s housing allowance is one of the most valuable clergy tax benefits and one of the most misused. Under Section 107, a minister can exclude from gross income the rental value of a church-provided home, or a designated housing allowance actually used to provide a home, up to the fair rental value including furnishings and utilities.⁷ The church must designate the amount in advance of paying it.⁶

The exclusion applies only for income tax. Federal regulations require ministers to include the housing allowance when computing net self-employment earnings.⁸ So a minister earning a $30,000 salary and a $20,000 housing allowance pays income tax on $30,000 but SECA tax on the full $50,000. This is one of the most common errors in clergy tax preparation.

Churches Don’t Pay Federal Unemployment Tax

Services performed for a 501(c)(3) organization exempt from income tax are excluded from the definition of “employment” for FUTA purposes.⁹ Churches fall within this exemption. They do not file Form 940, do not pay the 6.0% FUTA tax, and do not owe the effective 0.6% rate most other employers pay. State unemployment programs run on their own rules, and some states let nonprofit employers choose between paying state unemployment tax and reimbursing the state for benefits actually claimed.

Two Elections That Change Who Pays

Form 4361: A Minister Opts Out of SECA

A minister who is conscientiously or religiously opposed to accepting public insurance benefits from ministerial earnings can apply for a permanent SECA exemption by filing Form 4361. Economic objections don’t qualify. Before filing, the minister must inform their ordaining, commissioning, or licensing body of the opposition.¹⁰

The deadline is the due date, including extensions, of the return for the second tax year in which the minister had at least $400 in net self-employment earnings with any part from ministerial services. The two years don’t have to be consecutive.⁵ After the IRS receives the application it sends a statement of the grounds for exemption, which the minister must sign and return within 90 days.¹⁰

Once approved, the exemption is irrevocable.⁵ The minister forfeits Social Security credits on ministerial earnings for life, which can significantly reduce future retirement and disability benefits. Missing the filing window closes the option permanently.

Form 8274: A Church Opts Out of Employer FICA

A church or qualified church-controlled organization that is religiously opposed to paying employer Social Security and Medicare taxes can file Form 8274 to stop paying FICA on non-minister employees.¹¹ The form must be filed before the first date a Form 941 would otherwise be due, and the church certifies its religious opposition on the form itself.¹²

The election is permanent and applies to all current and future non-minister employees. Those employees then pay the full 15.3% SECA tax themselves on Schedule SE, just as ministers do. The church still withholds federal income tax from their pay. Only the Social Security and Medicare piece shifts. Most churches don’t make this election, because moving a 7.65% employer share onto the employee makes the church a less competitive employer.

Accountable Reimbursement Plans

Churches that reimburse ministers or staff for travel, books, conference fees, or other business costs should run those payments through an accountable reimbursement plan. Under an accountable plan, reimbursements don’t count as income, don’t appear on the W-2, and aren’t subject to income tax or SECA. Without one, every reimbursement becomes taxable compensation.

An accountable plan has to meet three requirements. The expense must have a genuine business connection to the worker’s role. The worker must substantiate each expense with receipts or records showing amount, date, place, and business purpose, generally within 60 days. And if the church advances more than the substantiated amount, the worker must return the excess within 120 days. Fail any one of these and every dollar paid through the plan becomes taxable wages.

Which Forms the Church Files

The forms follow the categories above.

Non-minister employees with no Form 8274 election: the church files Form 941 quarterly to report income tax withholding and FICA. Each employee gets a W-2 with wages, withheld income tax, and FICA reported in the standard boxes.
Non-minister employees with a Form 8274 election in effect: the church still withholds and reports income tax, but leaves the FICA boxes on the W-2 blank. Employees pay SECA on Schedule SE.
Ministers: the church issues a W-2 showing salary and, if applicable, the housing allowance in Box 14. Boxes 3 and 5 (Social Security and Medicare wages) stay blank. The minister files Schedule SE for SECA.¹³¹⁴
Independent contractors: a church that pays a guest speaker, freelance musician, or other contractor $2,000 or more during 2026 issues Form 1099-NEC. The threshold rose from $600 to $2,000 for nonemployee compensation.¹⁵

Churches do not file Form 940 because they are exempt from FUTA.⁹

Church Leaders Can Be Personally Liable

Nonprofit status does not shield church leaders from the consequences of unpaid payroll taxes. The IRS can impose the Trust Fund Recovery Penalty on any individual responsible for collecting, accounting for, or depositing withheld employment taxes who willfully fails to do so. The penalty equals 100% of the unpaid trust fund tax, plus interest.¹⁶

A responsible person can be a pastor, treasurer, board member, bookkeeper, or anyone else with authority over church finances. “Willfully” doesn’t mean intent to break the law. If you knew the taxes were owed and paid other bills first, the IRS treats that as willful.¹⁶ More than one person can be assessed for the same unpaid amount. On a tight church budget the temptation to cover a utility bill before a payroll deposit is exactly the choice that triggers this penalty, and the money comes out of individual bank accounts.

1
Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
2
Social Security Administration. Contribution and Benefit Base
3
Internal Revenue Service. Questions and Answers for the Additional Medicare Tax
4
Office of the Law Revision Counsel. 26 US Code 3401 – Definitions
5
Internal Revenue Service. Topic No. 417, Earnings for Clergy
6
Internal Revenue Service. Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers
7
Office of the Law Revision Counsel. 26 US Code 107 – Rental Value of Parsonages
8
eCFR. 26 CFR 1.1402(a)-11 – Ministers and Members of Religious Orders
9
Office of the Law Revision Counsel. 26 US Code 3306 – Definitions
10
Internal Revenue Service. Form 4361, Application for Exemption From Self-Employment Tax
11
Internal Revenue Service. Elective FICA Exemption for Churches and Church-Controlled Organizations
12
Internal Revenue Service. Form 8274, Certification by Churches and Qualified Church-Controlled Organizations Electing Exemption
13
Internal Revenue Service. General Instructions for Forms W-2 and W-3 (2026)
14
Internal Revenue Service. Instructions for Schedule SE
15
Internal Revenue Service. 2026 Publication 1099
16
Internal Revenue Service. Trust Fund Recovery Penalty