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Practice Management

Tech Talk: 403(b) Participation and Worker Classification

Q. A pastor wants to open a church 403(b) for his church and participate; however, the church sends him a Form 1099 at the end of the year for his services. Can he participate in the church’s 403(b) if he receives a 1099 and not a Form W-2?

A. Churches should issue a Form W-2, not a Form 1099, to their pastors/ministers employees. Ministers often have a dual tax status and will pay SECA taxes on their ministerial earnings, but most ministers should file their tax returns as employees and should receive a Form W-2 from their church.

This rule changed back in the 1990s, indicating that the true employees of the church including the ministers should receive a W-2. Before that, churches did treat ministers as always self-employed and reported on a 1099-MISC.

And remember: Misclassification of employees is something that the IRS is looking at for all employers!