GUEST WRITER: Rev. Bill Davidson, IRS Enrolled Agent
As Charge Conference season approaches, ministers and staff-parish relations committees need to plan now for clergy compensation to comply with the tax requirements and take advantage of all the tax benefits available to ministers (the topics of this series of articles):
- Required estimated quarterly tax payments or voluntary withholding agreement
- The clergy housing allowance benefit
- Deductible ministerial expenses
The Rev. John Wesley Asbury was hoping for a big tax refund after his first year of active ministry. After all, he almost always got money back at tax time from his previous secular job. In 2025 he received the conference minimum salary of $46,000 and a cash housing allowance of $30,000. When he completed his 2025 tax return, he was shocked to learn that he owed over $15,000 in taxes! He did not understand how this happened. He made sure it did not happen to him again.
Ministers and staff-parish relations committees must have adequate knowledge of the unique tax regulations related to clergy. If they don’t, ministers will underpay required tax obligations and owe more in tax than they should.
This series of articles addresses four essential aspects of clergy compensation that ministers and staff-parish relations committees must understand to insure timely payment of tax obligations and maximum tax savings. In the article we discuss Required Estimated Tax Payment (or Voluntary Withholding Arrangement).
Ministers are unique when it comes to taxes.
Ministerial earnings are exempt from withholding. Congress chose to relieve churches from burdensome payroll reporting obligations (since most churches’ only staff is the pastor) and, therefore, exempted the minister’s salary from withholding.
Ministers are not subject to FICA (Federal Insurance Contributions Act). This means that churches do not withhold the minister’s employee portion of Social Security/Medicare tax and do not pay the employer’s portion. Ministers are required to pay for Social Security/Medicare tax themselves as self-employed through SECA (Self Employment Contributions Act). As a result, ministers pay twice as much for Social Security/Medicare than secular employees.
Since the church does not withhold payments for the minister’s income or Social Security/Medicare taxes, the minister is required to estimate the total amount of tax for the year and pay it to the IRS through quarterly estimated tax payments (or enter into a voluntary withholding arrangement with the church).
When Pastor John learned this, he estimated his total tax for the upcoming year and entered into a voluntary withholding arrangement with his church.
Ministers who want to learn more are invited to the Center for Clergy Excellence’s clergy continuing education event: Called, Compensated, and Covered: Understanding Clergy Finances: A Four-Part Webinar Series for Clergy in October. Registration at this link:
Rev. Bill Davidson is an ordained elder in the Virginia Conference of the United Methodist Church and an IRS Enrolled Agent. He has served as pastor of churches and campus ministry for 39 years. He currently leads Clergy Tax Consulting for Tax Professionals. He consults with clergy, churches, and tax professionals. He is an award-winning instructor of professional continuing education courses on clergy taxes for CPAs and IRS Enrolled Agents (MYCPE ONE 2024 and 2025 Top Content and Content Creator) and is the author of two books on clergy taxes:
The Clergy Tax Trap: What Every Minister and Church Leader Needs to Know about Clergy Taxes (Clergy Tax Consulting, 2026)
The Clergy Tax Trap: Introduction to Clergy Taxes for Tax Professionals (Clergy Tax Consulting, 2026).
Two more articles forthcoming:
Ministers: Get Your Tax Planning Done Before Your Upcoming Charge Conference!—the Clergy Housing Allowance
Ministers: Get Your Tax Planning Done Before Your Upcoming Charge Conference!—Deductible Ministerial Expenses