WHO IS A MINISTER FOR FEDERAL TAX PURPOSES?
ARE MINISTERS EMPLOYEES OR SELF-EMPLOYED FOR FEDERAL TAX PURPOSES?
The IRS has its own criteria for determining who is a Minister for Tax Purposes. The criteria the IRS uses to determine who is a minister are not necessarily the same as those used by churches and denominations. Whether or not one qualifies as a Minister for Tax Purposes
is a very important question, since special tax and reporting rules apply to ministers under federal tax law. These rules include:
- Eligibility for housing allowances
- Self-employed status for Social Security
- Exemption of wages from income tax withholding (ministers use the quarterly estimated tax procedure to pay their taxes, unless they elect voluntary withholding)
- Eligibility under very limited circumstances to exempt themselves from SECA
The new Form 1040 is different from its predecessors in several ways, including the following:
1. It is half the size of the previous Form 1040 and consists of two half-pages.
2. Health care coverage (mandatory through 2018) is reported by checking a box on page 1 (it was reported on line 61 on the 2017 form).
3. All personal exemptions were repealed after 2017, and so there is no way to claim them on the 2018 Form 1040.
4. Some lines have been consolidated. For example, several items of income, capital gains, rental income, etc., are consolidated
now from Schedule 1 and reported on line 6.
5. Wages are now reported on line 1 (instead of line 7 as in past years).
6. AGI is reported on line 7 and without detail on the form (instead of line 37 as in past years).
7. The standard deduction is reported on line 8 and is significantly larger than in 2017 ($12,000 for unmarried persons and $24,000 for married persons filing jointly).
8. Several credits are now reported on Schedule 3 and consolidated on line 12b (they were reported on separate lines in 2017).
9. Many lines in the previous Form 1040 have been deleted and transferred to various schedules. In fact, the 79 lines on the 2017 Form 1040 have been reduced to 23, a reduction of more than 50 lines.
The Tax Court test
The United States Tax Court has created a seven-factor test for determining whether a minister is an employee or self-employed for federal income tax reporting purposes. The test requires consideration of the following seven factors: (1) the degree of control exercised by the employer over the details of the work; (2) which party invests in the facilities used in the work; (3) the opportunity of the individual for profit or loss; (4) whether or not the employer has the right to discharge the individual; (5) whether the work is part of the employer’s regular business; (6) the permanency of the relationship; and (7) the relationship the parties believe they are creating. Most ministers will be employees under this test.