What is the difference between federal income tax and the self-employment tax?

Pastors are considered dual-status employees, which means they are treated as an employee for federal income tax purposes, and self-employed for Social Security/Medicare purposes.  Being an employee, they do receive a W-2. Self-employment tax is simply the vehicle a self-employed individual uses to pay his Social Security/Medicare tax (SECA).  Income (whether you are an employee or self-employed) is subject to both federal income tax and Social Security/Medicare tax. Employees pay their taxes throughout the year as their employers withhold taxes from their pay.  The amount withheld for federal tax is figured based on the W-4 an employee fills out when employment begins.  For Social Security/Medicare the employer withholds 7.65% (6.2% for Social Security tax and 1.45% for Medicare) from the employee’s salary, then the employer matches that amount (pays an additional 7.65% which is not considered income to the employee). Self-employed individuals pay their taxes throughout the year by making quarterly estimated payments.  This amount covers both their federal tax and self-employment tax (Social Security/Medicare).  The amount they pay is only an estimate; they figure the actual amount when they file their yearly tax return.

Attention: Tax Law is subject to interpretation. Please be advised that the material contained on this Web site is for information only and is not intended to be a substitute for professional legal advice. The Stewardship Services Foundation endeavors to update the information on this site on a regular basis, but cannot guarantee its accuracy at all times.