QUESTION:  What are the implications of self-employment versus employee classification for ministers?

ANSWER:  The IRS assumes that ministers of religion are employees of the churches they serve.  Self-employment, when demonstrated, involves different tax treatment for compensation and benefits.  To determine whether an individual is an employee or self-employed, situation-specific factors about the performance of the duties are considered according to various tests the IRS and courts have developed.  A minister must determine whether he or she wants to be considered an employee or self-employed.  If he or she chooses to be self-employed, then he or she must be able to demonstrate that his or her employment relationship with the church is closer to a self-employment, contractual relationship than that of an employee.

For more information about how ministers are classified, http://www.irs.gov/taxtopics/tc417.html.

Tags: church, contractual relationship, employee, minister, nonprofit, self-employment