Transparency In Ministry

Scenario: Pastor Brown is 63, retired and currently receives social security benefits. He is a member of the “community” church. In February 2007, the “community” church hired Pastor Brown to be the pastor of visitation and outreach and his annual compensation will be $27,500.

Question? How does the change in employment status affect the pastor’s social security benefits?

Because Pastor Brown has not reached his full retirement age, his social security benefits that he is receiving will be reduced. If he earns more than $12,960 his benefits will be reduced by $1 for every $2 that he earns.

His benefits will be reduced as follows:

Annual compensation $27,500
Less: Allowable income 12,960
Excess compensation 14.540
Benefits reduced (Divide by 2) 7,270

Social security benefits will be reduced by $7,270 in 2007.

Until Pastor Brown reaches the age of 66, his social security benefits will be reduced based on the maximum income allowed for those benefits. Currently the annual maximum earned income level is $12,960.

If Pastor Brown is 68, retired and called back into ministry and receives an annual compensation of $27,500. His social security benefits will not be reduced because he has reached the full retirement age of 66.

FACTS: Ministers are self-employed for social security purposes, that is, they pay their own social security taxes. Churches are not supposed to withhold social security taxes for ordained ministers.

OPTION: Ministers have the option as to whether or not to have federal tax withheld from their check.

Some ministers have extra AMOUNTS withheld from their checks in federal withholding to cover the social security taxes they are to personally pay FOR THE YEAR.

Also, some ministers are exempt from even paying social security taxes, IF THEY HAVE ELECTED THE EXEMPTION DURING the first two years of ministry. See IRS Form 4361.