In our federal tax system, pastors have a dual tax status.[1] On the one hand, for federal income taxation they tend to be treated as employees of churches. This means that clergy pay federal income taxation on their gross income (or the amount they do not claim as housing allowance). This taxation consists of a progressive tax, which means that the more money ministers make, the higher percentage of federal income taxes they pay. The current federal income tax bracket for a married couple filing jointly is as follows:[2]
2025 Tax Bracket for Married Filing Jointly
Federal income tax rate | on taxable income from . . . | up to . . . | Pay + | % on excess | of the amount over |
10% | $0 | $23,850 | $0 | 10% | $0 |
12% | $23,851 | $96,950 | $2,385 | 12% | $23,851 |
22% | $96,951 | $206,700 | $11,157 | 22% | $96,951 |
24% | $206,701 | $394,600 | $35,302 | 24% | $206,701 |
32% | $394,601 | $501,050 | $80,398 | 32% | $394,601 |
35% | $501,051 | $751,600 | $114,462 | 35% | $501,051 |
37% | $751,601 | no limit | $202,154.50 | 37% | $751,601 |
To provide an example of how to calculate federal income tax, take the fictitious example of Pastor Abraham, senior minister of St. Paul’s Church in Anytown, USA, who is married and filing jointly with his wife who does not work. Let's say Pastor Abraham’s salary package for 2025 is $100,000, his housing allowance is $30,000, and after deductions and credits his taxable income for 2025 is $40,000. Therefore, we calculate his federal income tax liability like this:
$40,000
This portion is taxed at 12% (= $1,938)
$23,850
This portion is taxed at 10% (= $2,385)
$0
$1,938 + $2,385 = $4,323
Thus, Pastor Abraham’s and his wife’s federal income tax liability for 2025 is $4,323: $2,385 on the first $23,850 (taxed at 10%) and $1,938 on the next $16,150 ($40,000 – $23,850) (taxed at 12%).
On the other hand, for Social Security and Medicare taxation the IRS considers ministers self-employed, which means that they are subject to self-employment Social Security and Medicare or SECA taxation, unless clergy have opted out of such taxation on their ministerial income.[3] This tax is 15.3%—12.4% for Social Security and 2.9% for Medicare—on 92.35% of all income (salary plus housing allowance) up to a certain point.[4]In our fictitious example, let's say Pastor Abraham has not opted out of Social Security and Medicare and he pays SECA taxation. Consequently, Pastor Abraham owes 15.3% on $92,350 (92.35% of $100,000), which means that he owes $14,129.55 in SECA tax for 2025.
This brings Pastor Abraham’s total federal tax liability for 2025 to $18,452.55 ($4,323 + $14,129.55).
The reason that calculating federal tax liability is important is that in our federal system, we pay taxes as we go or make money. If we do not pay enough tax and we owe more than $1,000 to the IRS, then we pay the IRS a penalty, which is 7% on owed tax for each quarter.[5]Because of the complexity of federal taxes on clergy, they must estimate their tax liability properly so that they can be better stewards of God’s blessings and avoid needless penalties come tax filing season. For more information on taxes for ministers, reach out and schedule an appointment with us!
Endnotes:
[1]IRS Publication 517 (2024), p. 3.
[2] The format of this tax table is adapted from those that the Certified Financial Planning Board provides for financial planners, https://www.cfp.net/-/media/files/cfp-board/cfp-certification/exam/cfp-board-exam-tax-table-july-2025-1.pdf, while the numbers in the table are taken from the Bipartisan Policy Center: https://bipartisanpolicy.org/explainer/2025-federal-income-tax-brackets-and-other-2025-tax-rules/.
[3] For the ability to do this, see Form 4361.
[4] This limit changes each year. There is, however, no limit on the 2.9% Medicare taxation and the government levels another 0.9% taxation for Medicare on income exceeding $200,000 for someone filing single and $250,000 for married filing jointly. For more information see, https://www.irs.gov/taxtopics/tc751; https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes.
[5] To be as precise as possible, there is a penalty if you did not pay in at least 90% of you owe for a given tax year or 100% of the taxes on your previous year’s return. For more information, see https://www.nerdwallet.com/taxes/learn/underpayment-penalty-what-it-is-how-to-avoid-it or https://www.irs.gov/payments/underpayment-of-estimated-tax-by-individuals-penalty.