Unlike any other employee, a minister creates special issues for the payroll functions of a church. These issues aren't intuitive in nature, so it's not uncommon for errors to occur in the payroll reporting of a minister's compensation package. One of the most confusing aspects of a minister's compensation package is how he or she will be classified when paying into the Social Security and Medicare system.
There are two methods of paying into the Social Security and Medicare system.
1. Federal Insurance Contributions Act (FICA)
Employees traditionally pay in through the Federal Insurance Contributions Act. The employee pays into FICA via taxes withheld from their paychecks by their employers. The employer then matches the employee's amount and pays it directly into the system on the employee's behalf.
2. Self Employed Contributions Act (SECA)
The other system is the Self Employed Contributions Act, which assesses the tax to the self-employed individual on a Schedule SE filed with an individual's Federal Form 1040.