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Income Tax Withholding

Self-employment tax. If you are liable for SE

for purposes of setting up a retirement plan. See

tax, you must file Schedule SE (Form 1040) with

Employment Status for Other Tax Purposes,

and Estimated Tax

your return.

earlier. This is true even if your pay for qualified

services (discussed earlier) is subject to SE tax.

The federal income tax is a pay-as-you-go tax.

Exemption from SE tax. If you filed Form

For example, if a congregation pays you a

You must pay the tax as you earn or receive

4361 and received IRS approval not to be taxed

salary for performing qualified services, and you

income during the year. An employee usually

on those earnings, and you do not have any

are subject to the congregation’s control, you

has income tax withheld from his or her pay.

other income subject to SE tax, do not file

are a common-law employee. You are not a

However, your pay generally is not subject to

Schedule SE (Form 1040). Instead, write “Ex-

self-employed person for purposes of setting up

federal income tax withholding if both the follow-

empt — Form 4361” on Form 1040, line 56.

a retirement plan. This is true even if your salary

ing conditions apply.

If you filed Form 4029 and received IRS

is subject to SE tax.

•

approval not to be taxed on those earnings, and

You are a duly ordained, commissioned,

On the other hand, amounts received directly

you do not have any other income subject to SE

or licensed minister, a member of a relig-

from members of the congregation, such as fees

tax, do not file Schedule SE (Form 1040). In-

ious order (who has not taken a vow of

for performing marriages, baptisms, or other

stead, write “Exempt — Form 4029” on Form

poverty), or a Christian Science practi-

personal services that are reported on Schedule

1040, line 56.

tioner.

C or C – EZ, are earnings from self-employment

•

for all tax purposes.

More information. For more information on

Your pay is for qualified services (see

For more information on establishing a SEP,

filing your return, including when and where to

Qualified Services, earlier).

SIMPLE, or qualified retirement plan, get Publi-

file it, see the instructions for Form 1040.

cation 560, Retirement Plans for Small Busi-

If your salary is not subject to withholding, or if

ness.

you do not pay enough tax through withholding,

you might have to pay estimated tax to avoid

Retirement Savings

Individual retirement arrangements (IRAs).

penalties for not paying enough tax as you earn

The traditional IRA and the Roth IRA are two

your income.

Arrangements

individual retirement arrangements you can use

You generally must make estimated tax pay-

to save money for your retirement. You gener-

ments if you expect to owe taxes, including

ally are allowed to make contributions to either a

Retirement savings arrangements are plans that

self-employment tax, of $1,000 or more, when

traditional or a Roth IRA of up to $3,000 ($3,500

offer you a tax-favored way to save for your

you file your return.

if you are age 50 or older) for 2002, or the

retirement. You generally can deduct your con-

Determine your estimated tax by using the

amount of your pay, whichever is less. $3,000

tributions to the plan. Your contributions and the

worksheet in Form 1040 – ES. Then, using the

($3,500 if you are age 50 or older) is the most

earnings on them are not taxed until they are

Form 1040 – ES payment voucher, pay the en-

you can contribute for 2002 regardless of

distributed.

tire estimated tax or the first installment by April

whether you contribute to one or both of these

15, 2003. The April 15 date applies whether or

Retirement plans for the self-employed. To

IRAs. Contributions to a traditional IRA may be

not your tax home and your abode are outside

set up a qualified retirement plan (also called a

deductible. Your deduction for contributions to

the United States and Puerto Rico. For more

Keogh or H.R. 10 plan), a simplified employee

your traditional IRA may be reduced or elimi-

information, get Publication 505, Tax Withhold-

pension (SEP) plan, or a SIMPLE plan, you must

nated if you or your spouse is covered by an

ing and Estimated Tax.

be self-employed.

employer retirement plan (including, but not lim-

If you perform your services as a

The common-law rules determine whether

ited to a SEP or SIMPLE, or qualified retirement

common-law employee of the church and your

you are an employee or a self-employed person

plan). Unlike contributions to a traditional IRA,

pay is not subject to income tax withholding, you

can enter into a voluntary withholding agree-

Table 4. Who Must File

ment with the church to cover any income and

SE tax that may be due.

Filing

Income

Status Is:

At Least:

Filing Your Return

Single

You have to file an income tax return for 2002 if

Under 65 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7,700

your gross income was at least the amount

65* or older . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8,850

shown in the second column of Table 4. (Gross

income means all income you received in the

Married, filing jointly

form of money, goods, property, and services

Both under 65 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13,850

that is not exempt from income tax.)

One spouse 65* or older . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14,750

Additional requirements. Even if your in-

Both 65* or older . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15,650

come was less than the amount shown above,

you must file an income tax return on Form

Not living with spouse at end of year

1040, and attach a completed Schedule SE

(or on date spouse died) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,000

(Form 1040), if:

Married, filing separately

•

You are not exempt from SE tax, and you

All (any age) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,000

have net earnings from self-employment

Head of household

(discussed earlier under Figuring Net

Earnings From Self-Employment for SE

Under 65 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9,900

Tax) of $400 or more in the tax year,

65* or older . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11,050

•

You are exempt from SE tax on earnings

Qualifying widow(er) with

from qualified services and you have $400

dependent child

or more of other earnings subject to SE

tax, or

Under 65 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10,850

•

You had wages of $108.28 or more from

65* or older . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11,750

an electing church or church-controlled or-

ganization (discussed earlier under Relig-

* If your 65th birthday is on January 1, 2003, you are considered to be age 65 at the end of 2002.

ious Workers (Church Employees)).

Page 10

Publication 517 - Social Security And Other Information For Members Of The Clergy And Religious Workers - 2002 Page 10

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