For income tax purposes, the clergy is generally treated as common law employees of their church, denomination, or sect with some exceptions such as traveling evangelists who may be treated as self employed. You are taxed on your wages for performing ministerial services, and the offerings and fees you may receive for performing marriages, baptismals, or funerals. The fees for marriages, baptismals, and funerals are salary if performed as a requirement of your employment, however if you receive fees directly from members of the congregation for these services, the fees are then considered self employment income. "Love offerings" given to the church for your benefit are considered part of your salary if they are in exchange for your ministry services. These offerings may be gifts if given to you and not connected to your performance or services. Gifts given to individuals are not taxable nor deductible by the giver as a charitable contribution.

The employer will report the wages to you on Form W-2. If you itemize your deductions, you may be able to deduct certain business expenses related to your services for which you are not reimbursed. You may need to fill out Form 2106, Employee Business Expenses, and attach it to your Form 1040. Select Topic 514 for information on Employee Business Expenses, and Topic 508 for information on the 2% of adjusted gross income limitation. For income and business deductions as a self employed person, select Topic 408. Use Schedule C or Schedule C-EZ Profit or Loss from Business to report these earnings and expenses.

A housing allowance properly designated by the church may be excluded from your income if you are a minister who has been ordained, commissioned, licensed, or otherwise approved by your church to perform substantially all the services and sacraments of the church. If a parsonage is provided to you, or you rent, or buy your own home, use the fair rental value of the housing including utilities for the exclusion. If you buy your own home, you may still itemize the deductions for mortgage interest and property taxes. If your housing allowance exceeds your actual expenses, you must include this amount as "Other Income."

This exclusion applies only for income tax purposes. It does not apply for self employment tax purposes. For Social Security purposes, the clergy are always considered self-employed. Unless you elect out of Social Security only for your ministerial income for conscientious reasons, you are subject to self employment tax on your income. Your salary on Form W-2, the net profit on Schedules C or C-EZ, your housing allowance, less your employee business expenses will be subject to self employment tax on Schedule SE, Form 1040. You may elect out of Social Security in the first two years you have self employment income of $400 or more, if you are conscientiously opposed to public insurance because of religious considerations and notify your church of such, by filing Form 4361. You cannot request exemption solely for economic reasons.

Special rules apply to members of religious orders who have taken a vow of poverty.

For more information, see Publication 517, Social Security for Members of the Clergy and Religious Workers. Publications can be downloaded from this site, or ordered by calling 1-800-829-3676.

Tax Topics & FAQs | 1999 Tax Year Archives | Tax Help Archives | Home