Do Ministers Have to Pay Estimated Taxes?

By Raul Rivera

When considering the full spectrum of ministers’ taxes, the nuances can be mind-boggling. For instance, did you know that ministers are exempt from income tax withholding whether they report their income as employed or self-employed?

The very fact that ministers are exempt from income tax withholding is often the source of much confusion surrounding ministers’ taxes.

Some ministers take this to mean that they don’t have to pay income tax at all. But that is not the case.

Actually, the fact that ministers are exempt from income tax withholdings means that ministers pay their taxes in estimated quarterly installments. However, there is also confusion surrounding whether or not the estimated quarterly payments are optional.

So, do ministers really have to pay estimated taxes?

This question will be the focus of today’s blog.

Why the confusion surrounding estimated tax payments?

If you have ever held a non-ministerial job, then you know that each time you get paid taxes are withheld, and come every January you receive your Form W-2.

When ministers transition into being employed by their church, the tendency is to assume that their pay and withholding of taxes should be handled in a similar manner.

In reality, the pay and withholding of taxes for ministers should not be treated the same as non-ministerial employees.

In part, this is due to the fact that ministers have what is known as a dual-tax status.

This means that pastors are employees for the purposes of federal income tax, and, at the same time, they are considered self-employed for Social Security tax purposes.

As a result, pastors are responsible for withholding and making quarterly estimated tax payments unless they have entered into a voluntary withholding agreement with the church.

The IRS Tax Guide for Churches & Religious Organizations (Publication 1828) states the following:

“Unlike other exempt organizations or businesses, a church isn’t required to withhold tax from the compensation 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.”

The bottomline is that if you, as a minister, have not entered into a voluntary withholding agreement with your church, then you must make quarterly estimated tax payments.

If you need help determining how much your quarterly estimated tax payments will be, we have a resource for you. Click on the link below for access to our Minister’s Withholding Calculator.

How to make your quarterly estimated tax payments

If you choose not to enter into a voluntary withholding agreement, the IRS provides several ways for you to make your quarterly estimated tax payments.

1. Pay online

The IRS offers several electronic payment options via www.irs.gov/payments. Consider the following online payment options:

• IRS Direct Pay - This option is for online transfers directly from your checking or savings account. There is no fee to use this option.
• Pay by Card - Use this option to pay by debit or credit card. A convenience fee is charged by service providers for this option.
• Electronic Fund Withdrawal (EFW) - This is an integrated e-file/e-pay option offered when filing your federal taxes electronically using tax preparation software, through a tax professional, or the IRS.
• Online Payment Agreement - If you cannot pay in full by the due date of your tax return, you can apply for an online monthly installment agreement. Once you complete the online process, you will receive immediate notification of whether or not your agreement has been approved. A user fee is charged.
• IRS2Go - This is a mobile application of the IRS. By downloading the application to your mobile device, you can access Direct Pay or Pay By Card.

2. Pay by phone

Paying by phone is another option you can use to pay your quarterly estimated taxes.

You can call one of the three service providers of the IRS, but take note that each service provider charges a fee.

• WorldPay US, Inc - You can reach them at 1-844-729-8298 or on the web at www.payUSAtax.com
• Official Payments - You can reach them at 1-888-872-9829 or on the web at www.officialpayments.com
• Link2Gov Corporation - You can reach them at 1-888-729-1040 or on the web at www.PAY1040.com

3. Electronic Federal Tax Payment System® (EFTPS)

To use EFTPA, you must be enrolled either online or have an enrollment form mailed to you. To make a payment using EFTPS, call 1-800-555-4477 (English) or 1-800-244-4829 (Español). You can learn more about EFPTS at www.eftps.gov.

4. Use the Estimated Tax Payment Voucher

You can mail in your quarterly estimated taxes by using the estimated tax payment vouchers of Form 1040-ES. Take note that there is a separate estimated tax payment voucher for each due date.

Form 1040-ES provides an estimated tax worksheet to help you determine your quarterly estimated tax payments.

However, our Minister’s Withholding Calculator does the work for you, making it much easier to know how much your quarterly estimated tax payments will be.

3 things to know about voluntary withholding

Perhaps, as a pastor, you are the kind of person who would prefer not to worry about withholding your own taxes.

As previously mentioned, you can enter into a voluntary withholding agreement with your church which would allow the church to withhold your taxes.

If you are interested in establishing a voluntary withholding agreement, below are three things to know.

1. How to initiate voluntary withholding

As a minister, you can elect to enter into a voluntary withholding agreement with your church by simply completing Form W-4. Filing this form with your church is considered to be a request for voluntary withholding.

2. The duration of a voluntary withholding agreement

It is important to note that you or your church can terminate the voluntary withholding agreement at any time. Furthermore, you, as the minister, can determine that the voluntary withholding agreement end on a specific date.

As the employer, it is important for churches to note that a voluntary withholding agreement with the pastor(s) will affect the filing of the church’s quarterly Form 941.

3. What to do about self-employment taxes

For Social Security purposes ministers are always considered self-employed.

This means that unless you have “opted-out” of self-employment taxes, you are responsible for withholding and paying the full 15.3% self-employment tax.

When a minister enters into a voluntary withholding agreement with the church, the church is only obligated to withhold the minister’s federal income tax. In this instance, the minister would still be required to withhold and pay his/her own self-employment tax.

However, ministers who have a voluntary withholding agreement can indicate on line 6 of Form W-4 an additional amount of income to be withheld that would be a sufficient amount to pay his/her estimated self-employment liability.

The church would report this amount as additional income tax withheld on its quarterly Form 941, and the minister would report the excess withheld income on line 64 of his/her Form 1040. This amount would be applied to all taxes reported on Form 1040, including self-employment tax.

(Recommended reading: "Should Ministers Opt Out of Social Security?")

Do you still have questions?

If after reading this you still have questions, that is okay. Navigating ministers’ compensation and taxes can take some getting used to.

That’s why we have tools and service, such as our Minister’s Withholding Calculator and Minister’s Tax Service.

Click on the link below to find out how we can help you in your journey, or simply give us a call at 877-494-4655.

Recommended blogs for you:

• "7 Big Mistakes Ministers Make with Their Taxes"
• "Should Pastors Receive a W-2 or 1099?"
• "Starting a Church? Avoid These Three Mistakes"

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