Tax Tips for Ministers

Ministers are a vital part of our spiritual health.  

They are always on call and putting others' needs before their own.  However, they are just like everyone else and have to “pay unto Caesar what is Caesar’s”.  Ministers’ taxes however are a little more complicated than those who work a secular job.  Just as ministers provide for our spiritual health, we are here to help guide in tax matters in relation to financial health.

Wages or Self-Employment Income

If you are working for a church full-time or part-time the income that you receive is considered wages earned as an employee.  If you signed a contract with the church, it is very easy to know that you are considered an employee.  What if you did not sign a contract?  Then, if the church is able to dictate what you do (i.e. visiting the sick, office hours, etc.) and how you do it (even if you are able to have freedom to a degree), you are considered an employee.

Self-employment earning on the other hand can come in various forms. For example, if a member pays the minister fees for services such as marriages, funerals, baptisms, or any other personal services, this would be considered self-employment.  Also, if you are an independent contractor your earnings are considered to be from self-employment too.

Deductions

As a minister, often times you incur costs throughout the year that you are able to deduct.  One such deduction that you are able to take is for the mileage that you accrue when traveling for church-related business.  This can include a variety of things: hospital visits, nursing homes, travel to gospel meetings, seminars, and camps.  Along with mileage, you are also able to deduct up to 50% of your meals when traveling for any of these as well. Another set of items that are often purchased that can be deducted, as long as they are related to your work, are supplementary books which help gain a better understanding of the Bible and different perspectives.  You can also deduct any office supplies that you may purchase for your workspace.

Housing allowance (income the church provides for expenses incurred providing housing) is often times one of the largest amounts that a minister can deduct from income related taxes.  Expenses that are included in housing allowance are as followed: rent, utilities, items needed for the upkeep of the home, etc.  The amount that is allocated to housing allowance should not be included in gross income and should be designated as such before paying the minister.  If the amount designated is more than what the expenses actually were, then the portion of housing allowance not used is considered to be taxable income.

Taxes

One of the hardest parts about the end of the year taxes for ministers is the self-employment tax for the income that is earned.  Since ministers are subject to self-employment tax and not federal income tax, the calculation of tax is going to look a little different.  The current rate for self-employment tax Is 15.3% unless you file for and receive an exemption for social security taxes. Remember, once you opt out of social security you cannot opt back in. Housing allowance is included in income for self-employment tax as well.  

Tips

If you or your spouse work a secular job, consider withholding extra on both federal and state income tax.  Another great option you can consider is paying a quarterly estimated amount.  By doing either of these options you will be able to not only lower the amount owed at the end of the year but also potentially avoid an underpayment penalty.

If you are claiming any deductions, be sure that you are able to keep a record of your purchases, payments, and mileage.  One of the best ways you can do this is by keeping your receipts.  We highly recommend using an app or another device that will allow you to document and keep a copy at the tip of your fingers.

Ministers receiving a W-2 are not able to make deductions whether it is for business, office supplies, books, travel, etc. as they should be reimbursed by the church.

If you opt out of social security, be sure to have a backup plan for when you are no longer able to work; whether that be a retirement plan or another option.