Church payroll taxes
Churches generally do owe payroll taxes for their workers, including Social Security and Medicare taxes plus federal income tax withholding for ordinary church staff. The main carve-outs are federal unemployment tax and your minister's pay, which has its own set of rules.
Do churches pay payroll taxes?
Yes, usually. Wages paid to church staff, like those at other 501(c)(3) charities, generally come with Social Security and Medicare taxes unless some exception fits. That includes staff such as a secretary, custodian or music director on your payroll.
The church must also withhold federal income tax from what those employees earn. Tax-exempt status doesn't change any of this.
For 2026, the church and the employee each pay a share, and the church withholds the employee's share from their pay.
| Tax | Church share | Employee share | Wage cap |
|---|---|---|---|
| Social Security tax | 6.2% | 6.2% | $184,500 |
| Medicare tax | 1.45% | 1.45% | No limit |
The IRS sets the Social Security and Medicare rates, and the Social Security Administration sets the Social Security wage limit. You only start withholding the 0.9% Additional Medicare Tax once an employee's pay for the year tops $200,000.
Paying your minister
Your minister is usually an employee of the church that hires them. Still, the church doesn't take out income tax, Social Security or Medicare from what a minister earns, whether that minister counts as an employee or as self-employed.
Your minister pays self-employment tax instead. That tax covers the minister's own Social Security and Medicare, at both the employer and employee rates. With $60,000 in salary plus housing, the calculator on our site shows 2026 self-employment tax of $8,478, roughly $2,119 per quarter. No self-employment tax is due if the minister's net earnings are less than $400.
If the minister requests it, the church can agree to voluntary withholding so both income tax and self-employment tax get covered.
A housing allowance is the slice of a minister's pay the church designates for housing, and part of it can be tax-free within certain limits. The tax-free amount is the smallest of three figures: what the church designated, what the minister actually spent, and the fair rental value of the home plus utilities. Say the church designated $20,000, actual spending was $18,500, and the rental value with utilities comes to $24,000. That makes $18,500 tax-free, with the remaining $1,500 taxable.
On the W-2, the church enters the minister's taxable wages in box 1 and keeps the tax-free housing allowance off of it. The housing allowance can appear in box 14 or on a separate statement. Voluntary income tax withholding goes in box 2. A minister's W-2 and Form 941 show no Social Security or Medicare wages at all.
Do churches owe FUTA?
No. FUTA, the federal unemployment tax, is one most employers owe. Wages paid to staff of churches and other 501(c)(3) nonprofits are exempt from it.
Church payroll and Form 941
Each quarter, your church files Form 941 to report wages paid and taxes withheld to the IRS. It comes due four times a year: April 30 for the first quarter, July 31 for the second, October 31 for the third and January 31 for the fourth (IRS Publication 15).
The church also issues W-2s after year end. The church must provide employees with their 2026 W-2 copies no later than February 1, 2027. That same date is also the deadline for the W-2s and W-3 to reach the Social Security Administration.
Electing out of Social Security taxes
A church that objects to Social Security and Medicare taxes on religious grounds can elect an exemption. It does that by filing Form 8274 ahead of when its first Form 941 would come due.
The tax doesn't just vanish. After a church elects out, any employee paid $108.28 or more in a year owes self-employment tax on those wages.
Employee or contractor
Whether a worker counts as an employee or a contractor hinges on three factors: who directs the work, who handles the money side and what the relationship between you looks like. This distinction matters, since a church that classifies an employee as a contractor without a reasonable basis is on the hook for that worker's employment taxes.
Signs that point to an employee:
- The church sets when, where and how they work
- They earn a regular hourly or weekly wage
- Both sides expect the job to keep going with no set end date
A contractor, on the other hand, is generally free to look for other clients and often advertises their services. Pay usually comes as one set amount per job.
Common questions
Can wages ever be too small for Social Security and Medicare?
They can. When your church pays someone less than $100 during a calendar year, it owes no Social Security or Medicare tax on that pay.
How often must a church deposit withheld taxes?
It depends on how much tax you reported in the past. When a Form 941 filer's total taxes during the IRS lookback period, a past stretch of time the IRS checks to set your schedule, came to $50,000 or less, that filer counts as a monthly schedule depositor.
Must a church give a contractor a 1099?
That depends on the amount you paid. For 2026 payments, the Form 1099 reporting threshold is $2,000. Earlier payments had a $600 threshold.
Can a church provide a home rather than a housing allowance?
Yes, it can. If the church provides a parsonage, the full fair rental value is tax-free. A separate utilities allowance also stays tax-free, but only up to the amount the minister really spent on utilities.