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 Schedule C Form
1040, Net Profit from Business, or Schedule C–EZ Form
1040, 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
Schedule SE Form 1040. 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.
