This is a contract between a pastor and a church which is a non-profit corporation. A non-profit corporation is a group organized for purposes other than generating profit and in which no part of the organization's income is distributed to its members, directors, or officers. Non-profit entities are organized under state law. For non-profit corporations, many states have adopted the Revised Model Non-Profit Corporation Act (1986). For federal tax purposes, an organization is exempt from taxation if it is organized and operated exclusively for religious, charitable, scientific, public safety, literary, educational, prevention of cruelty to children or animals, and/or to develop national or international sports.
Oregon Pastoral Contract
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Multi-State
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US-04500BG
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FAQ
The IRS has ruled that clergy are self-employed for purposes of paying social security taxes. This means that they must pay both the employee and the employer share of social security tax under the Self-Employed Contribution Act (SECA).
The fair rental value of a parsonage or the housing allowance is excludable only for income tax purposes. The minister must include the amount of the fair rental value of a parsonage or the housing allowance for social security coverage purposes.
Clergy: known as rabbis, ministers, priests, imams, and other titles, conduct religious worship and provide spiritual and moral guidance to members of a congregation. They maintain the practices and beliefs of a particular religious faith or denomination.
Steps to Hiring your First Employee in OregonStep 1 Register as an Employer.Step 2 Employee Eligibility Verification.Step 3 Employee Withholding Allowance Certificate.Step 4 New Hire Reporting.Step 5 Payroll Taxes.Step 6 Workers' Compensation Insurance.Step 7 Labor Law Posters and Required Notices.More items...?
The IRS considers any money pastors directly receive from congregation members for services such as weddings or baptisms as self-employment earnings. This makes them independent contractors.
Even though a minister receives Form 1099-NEC or MISC, he or she may be an employee who should also receive Form W-2. A minister's earned income is net self-employment income from Schedule SE minus one-half of self-employment tax plus any nonministerial wages.
A pastor has a unique dual tax status. While they can be considered an employee of a church, for federal income tax purposes a pastor is considered self-employed by the IRS. Some pastors are considered independent contractors if they aren't affiliated with one specific church, like traveling evangelists.
These ministers receive Form W-2 and report their taxable gross income as employees. However, the minister's status as self-employed for Social Security tax purposes comes into play here. Since they are considered self-employed, ministers are exempt from federal income tax withholding.
Rates vary by state, but a 2014 report PDF from the state of Oregon noted that the median rate is around $1.85 per $100 of payroll, or 1.85 percent of an employee's salary.
A minister's housing allowance (sometimes called a parsonage allowance or a rental allowance) is excludable from gross income for income tax purposes but not for self-employment tax purposes.