Are SECA and Income Tax Reimbursements Taxable?

In order to “sweeten the pot” in a Clergy’s contract or Terms of Call, many times the church may offer to reimburse them for their unpaid Self-Employment Tax (SECA) and/or unpaid income tax. While it may seem like you’re living life tax free; think again. That reimbursement that many times a church classifies as “non-taxable”, is actually fully taxable under the law.

According to IRS Revenue Ruling 68-507, “if the church or church agency pays amounts in addition to salary to cover the minister’s self-employment tax or income tax, these are also includible in gross income. (Rev. Rul. 68-507, 1968-2 C.B. 485).” That means it should be added to your salary on form W-2, which would make it subject to Income and Self-Employment Taxes.

So, while you think you are a “Tax-Free Clergy”, it’s not really the case.

The lesson to be learned is that before you sign off on your next contract, contact Jacobson Clergy Tax Service for help. Our phone number is (609) 375-8295, or you can reach us through this website.