GuideStone, ERLC applaud House passage of Clergy Act

I think this "window" can help pastors who made a foolish choice early on and I am thankful for them and this opportunity.

But the greater problem with the way a pastor's income is structured is due to the dual tax status. Self-Employment taxes are a killer. There was a time when the "double-dip" made sense and provided a tax advantage for pastors with their housing allowance, but, with the standard deduction raised so high and the reality that only actual costs at or below the fair-market rental value + utilities can be excluded, there is effectively no double dip any longer. Add to that the reality that health insurance is sky high for simple catastrophic coverage and you see a real disadvantage from a tax perspective for a pastor.

At least in my situation, if Pastors could be considered employees, have their FICA taxes withheld and the church pay half like nearly every other worker in the US, the tax situation would not be so burdensome.

At least in my situation, if Pastors could be considered employees, have their FICA taxes withheld and the church pay half like nearly every other worker in the US, the tax situation would not be so burdensome.

This isn’t any different than others in a real sense. You just have to pay the tax yourself rather than the government using a middle man (your employer). If companies weren’t paying 1/2 the FICA, then employee salaries could rise by that much. So it is essentially a tax withholding that the company mails in rather than you.

As for double-dipping, I am not following you there. The “double dip” is that you can deduct mortgage interest from taxes (dip 1) on money that was tax exempt to start with (dip 2). That is still there. If you don’t go over the standard deduction, you still get the housing allowance. Having a lower standard deduction in order to deduct interest would ultimately hurt you, not help you, it seems.

That is true for my half, but I also pay the employers half... so I am hit double with FICA taxes. I understand the rationale that churches are tax exempt, but I don't think that pastors should be penalized just because of that.

I think you are making a point about the label, which I think clouds it a bit. Think of it this way, using round number to make it easy.

The employer has $100,000 to pay you. They take 7.65% out of that to pay FICA, which means your “salary” is $92,360. Then you pay 7.65%, which means you end up with $84,700.

If you are self-employed, and your salary is $100,000, then you pay the full 15.3% and end up with the same $84,700.

It’s exactly the same. It’s simply a matter of who sends it in. It is a bookkeeping issue, not a money issue. Calling it “half” is how it gets labeled by the IRS. It is your money, no matter who sends it in. If the employer did not withhold it as a middleman, then they could give it to you. Then you would send it in.

For a self-employed person, there is no employer to be a middle man. In both cases, the situation is the same. It is simply whether you pay it or whether the employer withholds it and pays it first. If the employer didn’t withhold, you could have a bigger check each week, but you would have a bigger tax bill each week.

The employer has $100,000 for this position. That is the cost of employment (putting aside health care, etc.). How it gets broken down is the label that gets put on it.

You could have the church lower your salary by 7.65%, and then 1099 it to you and their half. You would end up at the same place.

That is true for my half, but I also pay the employers half

It is called withholding because the employer withholds YOUR money so they can pay YOUR half. As Larry pointed out, it is simply who sends the money in. If it makes you feel better have the church withhold part of your salary and then give it to you on April 14th so you can then send it in. I know that sounds kind of rude and I wish I could say it more softly, but that is essentially what is happening.