Pastor - Tax Exempt Status

Withholding Income Tax for Ministers

Unlike other exempt organizations or businesses, a church is not required to withhold income tax from the compensation that it pays to its duly ordained, commissioned,

or licensed ministers for performing services in the exercise of their ministry. An employee minister may, however, enter into a voluntary withholding agreement with the church by completing IRS Form W-4, Employee’s Withholding Allowance Certificate. A church should report compensation paid to a minister on Form W-2, Wage and Tax Statement, if the minister is an employee, or on IRS Form 1099-MISC, Miscellaneous Income, if the minister is an independent contractor.

Social Security and Medicare Taxes

— Federal Insurance Contributions Act (FICA) vs. Self-Employment Contributions Act (SECA)

The compensation that a church or religious organization pays to its ministers for performing services in the exercise

of ministry is not subject to FICA taxes. However, income that a minister earns in performing services in the exercise of his ministry is subject to SECA tax, unless the minister has timely applied for and received an exemption from SECA tax.

See publication Tax Guide for Churchs and Religious Organizations for more information

http://www.irs.gov/pub/irs-pdf...

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IRS CIRCULAR 230: This tax advice was not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. Material discussed in this post is meant to provide general information and should not be acted on without obtaining professional advice appropriately tailored to your individual needs.

A pastor does not become tax exempt. The church can be tax exempt. But, the pastor still pays taxes, but the are handled differently than say a regular "employee."