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Civil Law Considerations—Financial Law | D-5
Even though the value of meals is excluded from
income for income tax purposes, it must be included
as income for social security tax purposes.
Social Security Status.
Whether or not a cleric
is classified as an employee for income tax pur-
poses, under the Code he is classified as an inde-
pendent contractor for social security purposes
with respect to services performed in the exercise
of his ministry.
16
Taxation of Members of
Religious Orders
Income tax liability for members of US religious
orders generally is governed by a revenue ruling,
Rev. Rul. 77-290,
17
which provides that a member
of a religious order providing services to a church
employer will be considered for tax purposes
to be an
agent of his or her order, and that member will not
be liable individually for federal income or employ-
ment taxes on compensation paid by the church
employer. The religious is not liable for payment of
taxes,
provided
that three criteria are met: (1) the
religious must be subject to a vow of poverty; (2)
the religious must be providing services for a church
employer listed in the OCD
18
at the direction of his
or her ecclesiastical superior; and (3) the religious
must remit the full amount of compensation to his
or her religious order, which must be exempt from
federal income tax under section 501(c)(3) of the
Code. If any Rev. Rul. 77-290 criterion fails to be
met, the religious is individually liable for taxable
income received as compensation.
Rev. Rul. 77-290 was not intended to apply to
members of non-US religious orders.
19
Among other
factors, a non-US religious order is unlikely to qual-
ify for section 501(c)(3) status. Even if a sponsor-
ing organization or church employer were to remit
16 Under IRC § 3121(b)(8)(A), services performed by a minister of the
gospel in the exercise of his ministry are not considered “employ-
ment” for purposes of Federal Insurance Contributions Act (FICA)
tax. Under IRC § 1402(a)(8), self-employment tax is imposed on
income from such services.
17 1977-2 C.B. 26;
see
Joint Memorandum of USCCB and Legal
Resource Center for Religious,
Compensation Paid to Members of
Religious Orders
(September 11, 2006), available at
www.usccb.org/ogc
for more detailed information.
18 This treatment is also applied to asterisked (
domestic
non-Group
Ruling) listings in the OCD, since these are subject to the same
standards of relationship to the Church as are ordinary Group
Ruling listings in the OCD.
19 For purposes of this section, the designation of a religious institute as
“non-US” refers to the place of the institute’s organization as a civil
entity, not its status as an institute of diocesan or pontifical rite.
compensation earned by an international religious
directly to his or her non-US religious order, as is
customarily done with compensation earned by
members of US religious orders, this practice would
not satisfy Rev. Rul. 77-290, which requires that
the funds be paid to a section 501(c)(3) tax-exempt
organization. Accordingly, international members
of non-US religious orders working in the United
States usually incur individual tax liability on com-
pensation they earn.
20
Classification of International
Religious Workers and
Seminarians for US
Tax Purposes
Federal income taxation of foreign nationals is in
itself complex and confusing, and even more so,
because the terminology used for tax purposes is
not the same as that used for immigration purposes.
For tax purposes, the threshold determination is
whether the international religious worker or semi-
narian is classified as a resident alien or nonresident
alien. Penalties may apply to church employers for
failure to determine the correct status, to obtain
the proper documentation, or to withhold and
report properly.
21
Resident Alien vs. Nonresident
Alien Status
Nonresident alien status is the default status. Thus,
unless the religious worker or seminarian satisfies
either the “green card test” or the “substantial pres-
ence test” for resident alien status, he or she will be
considered a nonresident alien.
Green Card Test.
Individuals who have been
issued a permanent resident card or “green card” at
any time during the calendar year are treated as res-
ident aliens from the first day that they are present
in the United States after receiving the green card.
22
20 In addition, contributions made by an international religious to a
non-US religious order do not qualify as deductible charitable con-
tributions under section 170 of the Code, which limits deductibility
to contributions made to qualified US organizations.
21 Among the applicable penalties are: failure to withhold under sec-
tion 6672, failure to furnish statements to employees under section
6674, failure to file correct information returns under section 6721,
and failure to issue correct payee statements under section 6722.
22 IRC § 7701(b)(1)(A)(i).