Do ministers need to make quarterly tax payments?
If you’re a minister, self-employed or retired, you might need to make estimated tax payments. You must pre-pay a substantial portion of the taxes you’ll owe for that year in estimated quarterly payments to avoid penalties.
The total of your withholding and estimated tax payments must generally be at least 90 percent of your tax liability for the year, or 100 percent of your last year’s tax liability. There’s no penalty if your underpayment is less than $1,000. Special rules apply to higher-income taxpayers and farmers.
It makes good sense to adjust the amount withheld so that it covers your total tax bill, even if you have extra income from moonlighting or investments. Pay your estimated taxes in quarterly payments, due in April, June, and September of the current year, and in January of the following year. Start paying estimated taxes as you earn taxable income and be sure to pay enough to avoid an underpayment penalty for each period. Don’t wait to pay what you owe.
A church is exempt from withholding tax on ministry income, but may withhold income tax under a “voluntary withholding arrangement.” However, it is the minister’s responsibility to ensure that the proper amount of tax is paid throughout the year. The church has no liability exposure if the wrong amount has been withheld for a minister under a voluntary withholding arrangement.
We’ll be glad to help you if you think you’ll need to make estimated tax payments or review the amount being withheld under a voluntary withholding arrangement. The quarterly calculations can be complicated, and we can help you figure out how much you need to pay on each date so you’re right on target.