definitionS of a minister for legal purposes
the purpose of solemnization of marriages
All 50 states have laws in the books concerning the solemnization of marriages and who can conduct weddings. After reviewing the laws of all 50 states, we have summarized the definition of ordination for this purpose to be the following:
Ordination must be designated by a considered, deliberate, and responsible act of the church, and the minister must be in regular communion with the organization that licensed or ordained him.
THE PURPOSE for employment purposes
As an ordained minister of a religious organization who receives compensation for the ministerial services performed, you are considered a common-law employee. As a common-law employee, your employment is regulated by both state and federal law. However, there is a special stipulation known as the “ministerial exception” that frees churches from many of these rules when selecting and employing ministers. Although we will not delve into what the ministerial exception is in this portal, we will, however, examine common-law rules.
One of the most important decisions a church must make when hiring an individual is to determine whether or not that individual is an employee or a self-employed individual. Oftentimes, churches mistakenly believe that they can use their discretion to make this determination. In actuality, the federal government uses common-law rules to determine whether or not a hired individual is an employee of the organization or a contract worker. IRS publication 15-A states the following:
“Under common-law rules, anyone who performs services for you is generally your employee if you have the right to control what will be done and how it will be done. This is true when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.”
Common-law rules are composed of three factors: behavioral control, financial control, and the relationship of the parties in the service agreement. These three factors show the degree of authority that the church organization has over their employees. The greater the degree of supervision, the more likely it is that the worker is an employee. Below is a closer look at each of these factors and their applications to church organizations.
- Behavioral control: Behavioral control is present when the church has the right to determine an employee's responsibilities, how his or her job is accomplished, and when. When this type of supervision exists, the individual is an employee.
- Financial control: Financial control exists when the church determines the business aspects of the employee's pay, including, but not limited to: how the employee is paid, whether expenses are reimbursed, and who provides resources/tools/supplies to complete assigned job responsibilities.
- Relationship of the parties: If the individual provides services that are vital to a church’s existence, he or she is an employee. Additionally, having a written contract and employee-type benefits such as insurance, pensions, or vacation pay indicates that a paid worker is in fact an employee. The permanency of the relationship is also important. If the worker is expected to work for the organization on an indefinite basis, he or she is considered an employee.
Furthermore, according to the IRS, “The general rule is that an individual is an independent contractor if the payer has the right to delegate or direct only the result of the work and not what will be done and how it will be done.” Therefore, correctly determining whether an individual is an employee or a self-employed individual is of the utmost importance because this determines the way that the worker is paid and the tax liability of the church organization.
Now that we have an understanding of how ordained ministers are defined for employment purposes, we will next look at how this relates to the definition of an ordained minister for tax purposes.
THE PURPOSE for tax purposes
Unfortunately, the IRS does not have a concrete definition of the word minister, but has used some court precedence for the setting of guidelines that say who is or is not a minister for tax purposes. IRS Publication 517 defines ministers as,
“...individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination. They are given the authority to conduct religious worship, perform sacerdotal functions, and administer ordinances or sacraments according to the prescribed tenets and practices of that church or denomination.”
Furthermore, according to IRS Publication 517, most ministers have a dual tax status. What this means is that a minister is an employee of the church for federal income tax purposes and self-employed for Social Security and Medicare tax purposes. It is not uncommon for churches to misunderstand this rule when paying their ministers a salary.
Oftentimes, churches treat their ministers as self-employed persons and assume that they can issue ministers a Form 1099-MISC. In actuality, since a minister is usually considered an employee under common-law rules, the minister should be treated as an employee for federal income tax purposes and should receive Form W-2 indicating the wages that the church paid to him or her. When it comes to Social Security and Medicare taxes, the minister is considered self-employed and is responsible to pay 100% of those taxes. Unlike the rest of the taxpaying population, when a minister completes his or her tax return, he or she is responsible for paying federal income tax and self-employment taxes.
For instance, when a person works a secular job, the employer withholds federal income tax and Social Security tax. That simply is not the case for a minister because of his dual tax status. Therefore, a minister employed by your church should receive a Form W-2 indicating his or her wages earned from the church, and not a Form 1099-MISC.
In most instances, “duly ordained, commissioned, and licensed” ministers who meet the definition of a minister for tax purposes will also qualify for the special tax privileges afforded to ministers: housing allowance and self-employment tax exemption. The purpose of The Leader's Portal is not to explain these special tax privileges at this time, but rather, it is intended to give you a deeper understanding of the requirements for legal ordination through Shift Today Ministries Licensing Program. Let's move forward and take a closer view of the three types of ministerial licensing given to ministers after they have completed Shift Today Ministries Licensing Program.