AS A MINISTER: ARE YOU TRULY SELF-EMPLOYED?
EMPLOYEE OR SELF-EMPLOYED
While ministers are considered self-employed for social security tax purposes, it may not be so for income tax purposes. Normally a person receiving pay for services performed on a continual basis may be employees under common law rules as described in Reg. Sec. 31.3401(c)1. In Revenue ruling 87-41, the Internal Revenue Service lists several considerations to determine whether an individual is self-employed or an employee.
For our churches the major questions are: How much control does the church or church board have over what the minister is supposed to do and to what extent does the congregation provide direction as to how that work will be completed. Individuals that are considered employees will receive a W-2 form at the end of the year whereas the self-employed person is to receive a Form 1099.
The factors that determine the minister’s status are listed. It is not enough to find that only one or two of the factors apply, but there must be a majority of them that affects the minister to make the decision.
1. Does the church (or board) provide instructions as to how, when, and where the work is to be performed. If the church does not care, then the minister is probably self-employed.
2. If the worker is required to receive training, then the employee status would apply.
3. If the minister’s activities are an integral part of the operation of the church, then he is probably an employee. The work activity would have to be subject to control of the church.
4. Are the services rendered personally? Ministers do perform their ministries on a personal basis. In other words, they do the preaching, visiting, etc.., personally. If the minister has an agreement that they can hire someone to do this work (such as an assistant), then that minister would be self-employed. If the minister does all the work personally, he could be considered an employee.
5. Who has the hiring, supervising, and responsibility to hire assistants? If the pastor does, then again he would be self-employed.
6. When a minister has an on-going relationship for pay, an employee-employer relationship may exist.
7. Is the minister required to maintain a set time to perform the duties? Most ministers set their own time and place to work during the week, and in doing so become self-employed. If the church has control over the hours, etc., then and employee status could be in existence.
8. Is full time required? An independent, self-employed minister is free to work when and for whom they chose, but if the church demands full time, then that minister cannot work for others, and an employee relationship exists.
9. Control over the place of work is important. If the minister is required to perform the duties on the church premises, to have a church office either at the church or parsonage, and is required to perform the duties of a minister in a certain geographical area, then he would be an employee.
10. Who sets the ministers schedule? If the church sets the schedule, meeting dates, office hours, then an employee-employer relationship exists. Many pastors set their own schedule, therefore being self-employed.
11. Are regular oral or written reports required on a scheduled basis? If not, the pastor is probably self-employed.
12. Payment of services is also a determining factor. A set wage or salary suggests an employee employer relationship. Payment on a commission basis, such as a percentage of offerings, etc., suggest self-employed status.
13. Who provides the tools and materials for which the minister performs the work duties? Self-employed individuals provide their own tools and materials.
14. Are the ministers services available to the general public? Ministers who work only for a local congregation without involvement to the general public could be employees. Evangelists who travel would be self-employed. Also a pastor who regularly preaches out could be construed self-employed.
15. Is there a contract in writing? An independent contractor can not normally be discharged unless the contract is canceled. If the minister can be dismissed at any time by the congregation, an employee-employer relationship may exist. Also for consideration, if the minister has the right to terminate his relationship with the church without any liability, he could be determined an employee.
Please review this list to determine your individual status. Every minister’s status could vary.
The following is an agreement that needs to be put into operation so that the pastor is not construed to be an employee. This will allow the pastor to file his tax return as a self-employed individual.
This agreement, entered into this _______________ day of __________19__, between ___________________________ hereinafter referred to as “church” and ______________________ hereinafter referred to as “minister” to wit, The said church hereinto agrees that the said minister is duly the pastor of the church, and shall have the right to act as the pastor of the assembly and fulfill all duties of such.
The minister shall have the right to go about normal pastoral duties without the day to day direction of the church, and the church does not instruct the minister as to the manner in which the pastoral duties are performed. This agreement is only for the purpose to state that the relationship of the minister to the church is of a self-employed nature and not of an employee. The minister does not meet the requirement of the definition of an employee as stated in the Internal Revenue code.
The church warrants that no taxes are withheld from monies paid to the minister, nor is it responsible to do so. The minister agrees that he/she is totally responsible for all income taxes or self-employment taxes payable because of his/her self-employed status. This does not hereinto mean that the church could not, if desired, remit to the minister an additional remuneration such as a bonus, to help defer this responsibility if said church wishes. If the church did remunerate to minister this type payment, it would be rendered as additional self-employed income to the minister.
This agreement does not replace any other agreement between said parties, whether verbally or written, and can be terminated by either party at any time. This agreement will automatically terminate upon the resignation of the minister from the church.
This agreement is to be effective for years beginning after ___________.
By: _______________________ ____________________ ___________________
(The original source and/or publisher of the above material is unknown.)
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