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IRS - Earnings for clergy
IRS - Earnings for clergy

Special tax rules apply to licensed, commissioned, or ordained ministers regarding income, expenses, and Social Security coverage.

Nicole Lacorte avatar
Written by Nicole Lacorte
Updated over 2 weeks ago

Employee or Self-Employed?

  • Ministers are generally employees of the church, denomination, sect, or religious organization that hires them.

  • Exceptions: Some ministers, such as traveling evangelists, are considered self-employed (independent contractors).

  • Taxation of Earnings:

    • All income (salary, offerings, fees for marriages, baptisms, funerals, etc.) is subject to income tax.

    • The way expenses are treated depends on whether the minister is an employee or self-employed.

Determining Employment Status

  • If the church controls what you do and how you do it, you're considered an employee under common law.

    • Salary paid by a congregation is wages and subject to income tax withholding.

    • Fees received directly from congregation members are self-employment income and subject to self-employment tax.

  • If you're self-employed, all income received for ministerial services is reported on:

    • Schedule C (Form 1040) – Profit or Loss from Business (Sole Proprietorship).

Housing Allowance

  • Ministers may exclude housing benefits from taxable income if provided by their employer:

    • Parsonage: The fair rental value of a home provided as compensation (including utilities) is excludable from income.

    • Housing Allowance: If the church designates an official housing allowance, ministers can exclude it to the extent it is used for housing expenses (e.g., rent, mortgage, utilities).

    • Limitations: The exclusion cannot exceed the lowest of:

      • Reasonable compensation,

      • Fair rental value of the home, or

      • Actual expenses for providing the home.

  • If you own your home, you can still deduct mortgage interest and real property taxes.

  • Social Security Note: Housing allowances are excluded for income tax purposes but must be included for self-employment tax.

Social Security Coverage

  • Ministers' income is subject to self-employment tax, covering Social Security and Medicare, regardless of their employment status.

  • This includes:

    • Salary reported on Form W-2,

    • Net profit from Schedule C,

    • Housing allowance less deductible expenses.

Exemption from Self-Employment Tax

  • Ministers may request exemption from self-employment tax for religious or conscientious objections.

  • To qualify:

    • File Form 4361 (Application for Exemption from Self-Employment Tax for Ministers, Members of Religious Orders, and Christian Science Practitioners).

    • Must be filed by the due date of the second tax year in which you have at least $400 of ministerial self-employment earnings.

    • The two years don’t have to be consecutive.

  • Important: Once approved, the exemption is irrevocable.

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