2007 Ministers' Salary Survey

Social Security Offset

In federal tax liability, ministers have a dual status. When it comes to federal income tax, the minister is considered an employee, so federal income tax withholding applies to the minister's salary, and the minister should receive a Form W-2 for the year. However, when it comes to FICA (Social Security and Medicare taxes), the minister is considered self-employed, so these taxes are not withheld. The minister completes and files Schedule SE with his or her tax return and pays self-employment tax.

Most employees see on pay stubs that their employer withholds FICA taxes. This amount is half of the employee's tax liability, in most cases 7.65%. The employer then matches the withholding, so the total tax is 15.3%. The minister does not have FICA taxes withheld, however, and is liable for the entire 15.3% in the form of self-employment tax. The Social Security offset is a way for the church to make up the employer's matching portion.

Whether a church should still offer the Social Security offset is a matter of some debate. At one time it was an issue of reducing the minister's tax liability. However, recent changes to the federal tax code allow those who file Schedule SE to claim half of the self-employment liability as an adjustment to income on Form 1040.

The advantage of including a Social Security offset is that it allows for a more direct comparison between the minister's compensation and that of similar positions in the community. The matching portion of FICA is not part of what most employees and employers view as salary. So when comparing the minister's base compensation to similar positions, the church should either add the Social Security offset (7.65% of salary and housing) as a separate line item or decrease the base compensation used for comparison by 7.65%.

The Social Security offset, if paid, is considered part of the minister's taxable income and should be reported on Form W-2.