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As discussed in my recent post about ministers and the Minnesota Paid Leave Law, self-employed individuals are not covered by the Minnesota Paid Leave Law. Ministers are generally considered "self-employed." Section 1402 of the Internal Revenue Code requires that any compensation paid to a minister for performing ministerial duties must be treated as self-employment income under the Self-Employment Contributions Act (SECA). This income cannot be treated as wages for purposes of the Federal Insurance Contributions Act (FICA). As self-employed individuals, ministers are not covered by the Minnesota Paid Leave law. However, they can opt into the state's Paid Leave program under the same conditions available to other self-employed individuals.
IRS Form 8274 and Church Employees (Not Ministers).
Form 8274, Certification by Churches and Qualified Church-Controlled Organizations Electing Exemption from Employer Social Security and Medicare Taxes, allows churches and church-controlled organizations that are religiously opposed to paying Social Security and Medicare taxes to elect not to withhold Medicare and Social Security taxes (exemption) from non-ministerial employees. This does not exempt the church or church-controlled organization from withholding income taxes, or from providing W-2s to such employees.
What qualifies as a church or church-controlled organization?
A "church" includes churches, conventions or
associations of churches, and any elementary or secondary school
that is controlled, operated, or principally supported by a church
or such associations.
A "qualified church-controlled organization" refers to a
church-controlled, tax-exempt organization under Section 501(c)(3),
unless it: Offers goods, services, or facilities for sale to the
general public beyond an incidental basis, and Normally receives
more than 25% of its support from government sources and/or
receipts from admissions, sales, services, or facilities in
activities that are not unrelated trades or businesses.
Timing Matters.
Form 8274 must be filed after a church hires employees but before the first date on which a quarterly or annual employment tax return is due. Churches cannot file Form 8274 retroactively in response to the Minnesota Paid Leave law.
Impact on Employees & Minnesota Paid Leave Law.
Due to the filings of this exemption, these non-ministerial employees are considered "self-employed" and are required to pay applicable self-employment taxes (SECA). As discussed above, the Minnesota Paid Leave Law does not automatically cover self-employed individuals. Like ministers, these employees should not be included in a church's quarterly wage reports. They will be eligible to opt into the state's Paid Leave program under the same conditions as other self-employed individuals.
Next Steps.
In moving forward, it is important for any church or church-controlled organization to confirm and review their Form 8274 filings, review pay practices to confirm no withholding of FICA, review submitted and current wage reports, and consult with trusted professionals, including attorneys and accountants, to ensure legal compliance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
