Federal Paid Leave Tax Credits for Religious Employees Affected by Coronavirus

Paid Leave requirements and tax credits under the Families First Coronavirus Response Act (the "Act"), as amended by the CARES Act, apply generally to private sector and not-for-profit employers, including religious organizations, that are under 500 employees, and to self-employed individuals. MInisterial workers employed by religious organizations generally are subject to self-employment tax on their earnings under section ("Section") 1402(a)(8) of the Internal Revenue Code of 1986, as amended ("Code"). Under sections 7002 and 7004 of the Act, equivalent self-employment sick or family leave tax credits apply to individuals deemed to carry on a trade or business within the meaning of Section 1402(a). At first impression, religious employees subject to SECA would not appear to carry on a trade or business in a colloquial sense. In fact, ministerial workers subject to SECA are deemed employees of the employer for purposes of the requirements under the Act, including the threshold employee count or an exemption from the Act requirements for employers with fewer 50 employees. And, under Section 1402(c)(4), a trade or business as a general rule does not include services performed by a duly ordained, commissioned, or licensed minister of a church in the exercise of his ministry or by a member of a religious order in the exercise of duties required by such order. However, the exclusion applies only to ministerial employees who has an effective exemption from the Social Security Act, 42 U.S.C. §§ 301 et seq., with respect to the earnings under Section 1402(e)(1). Thus, a religious employee who pays SECA tax would be deemed to be carrying on a trade or business within the meaning of Section 1402(a). Therefore, the ministerial employee may claim a refundable credit against self-employment tax with respect to a qualified sick leave and qualified family leave equivalent amounts, as applicable, under Act sections 7002 and 7004. Accordingly, tax-exempt religious organizations may consult with tax and employment counsel to assist ministerial employees affected by the coronavirus in determining eligibility for self-employment tax credits. The comprehensive article on paid leave requirements and tax credits, including DOL and IRS guidance, "Paid Leave Credit for Private Sector and Nonprofit Employers Within The Families First Coronavirus Response Act" in the April 2020 issue of the Tax Management Compensation Planning Journal may be viewed in the News section.