For income tax purposes, a licensed, commissioned, or ordained minister
is generally treated as a common law employee of his or her church, denomination,
or sect. There are, however, some exceptions such as traveling evangelists
who may be treated as independent contractors. If you are an employee performing
ministerial services, you are taxed on wages, offerings, and fees you receive
for performing marriages, baptismals, and/or funerals.
The employer will report the wages to you on Form W-2 (PDF). If you itemize your deductions, you may be able to deduct certain
unreimbursed business expenses related to your services. You may need to fill
out Form 2106 (PDF), Employee Business Expenses,
and attach it to your Form 1040 (PDF). Refer to Topic 514 for information on Employee Business Expenses, and Topic 508 for
information on the 2% of adjusted gross income limitation. If you are an independent
contractor, use Form 1040, Schedule C (PDF), Net
Profit from Business, or Form 1040, Schedule C-EZ (PDF), Profit
or Loss from Business, to report these earnings and expenses, and refer
to Topic 408 for income and business deductions for a self–employed
person.
The gross income of a licensed, commissioned or ordained minister does
not include the fair rental value of a home (a parsonage provided), or a housing
allowance paid, as part of the minister's compensation for services performed
that are ordinarily the duties of the minister. If you own your home, you
may still claim deductions for mortgage interest and property taxes. If your
housing allowance exceeds your actual expenses, you must include this amount
as other income.
A minister who is furnished a parsonage may exclude from income the fair
rental value of the parsonage, including utilities. However, the amount excluded
cannot be more than the reasonable pay for the minister's services.
A minister who receives a housing allowance may exclude the allowance from
gross income to the extent it is used to pay expenses in providing a home.
Generally, those expenses include rent, mortgage interest, utilities, repairs,
and other expenses directly relating to providing a home.
The minister's employing organization must officially designate the allowance
as a housing allowance before paying it to the minister.
The fair rental value of a parsonage or the housing allowance is excludable
from income only for income tax purposes. No exclusion applies for self–employment
tax purposes. For Social Security purposes, a duly ordained, licensed or commissioned
minister is self–employed. This means that your salary on Form W–2,
the net profit on Schedule C or C–EZ, and your housing allowance, less
your employee business expenses are subject to self–employment tax on Form 1040, Schedule SE (PDF). However, you can request
an exemption from self–employment tax, if you are conscientiously opposed
to public insurance for religious reasons. You cannot request exemption solely
for economic reasons. To request the exemption, file Form 4361 (PDF), Application for Exemption From Self-Employment Tax for Use
by Ministers, Members of Religious Orders and Christian Science Practitioners,
with the IRS. You must file it by the due date of your income tax return (including
extensions) for the second tax year in which you have net earnings from self–employment
of at least $400.00. This rule applies if any part of your net earnings came
from the performance of ministerial services.
For more information, refer to Publication 517, Social Security
and Other Information for Members of the Clergy and Religious Workers.
