- What Income Is Subject to Self-Employment Tax?
- Maximum Earnings for Social Security Deduction
- What Types of Income Do You Not Have to Pay Social Security Tax On?
- How Many People Receive Social Security Benefits?
- The Responsibilities of the Taxpayers to Ensure They Are Withholding Enough Taxes
- Tax Rules on Freelance Work in America
Answering the call to preach brings unique tax consequences. The Internal Revenue Service treats preachers as employees for income tax purposes, but as self-employed for Social Security and Medicare taxes. Preachers can earn wages from serving their church and self-employment income from weddings, guest speaking, baptisms and other functions away from their church. These factors allow ministers to claim numerous deductions. Preachers may legally avoid paying both income and self-employment taxes on part of their earnings.
Ministers can write off their un-reimbursed job expenses if they are treated as employees of their church. Eligible travel expenses include mileage for visiting parishioners at homes and hospitals. If a minister attends a conference as part of the church activities, the minister can deduct the costs of overnight lodging and meals as well as travel to the event. A minister may not claim travel from home to the church, since the church is considered the minister’s office. The deduction is based on either actual spending or a mileage rate set by the Internal Revenue Service. These deductions are claimed on Schedule A of Form 1040.
Self-employed ministers and employed ministers who get paid for baptisms, weddings and other activities outside their church may deduct from their earnings expenses for travel and the use of equipment in the form of depreciation. These expenses do not count as itemized deductions but are reported on Schedule C of Form 1040 and constitute part of income or loss from a business. A self-employed preacher can claim employment expenses by forming the ministry as a corporation and treating himself as an employee of the corporation.
Preachers may avoid paying income taxes on the rental value of a home provided by the church or a housing allowance. Those who live in a parsonage can exclude from income the fair rental value of the parsonage, including utilities, but not to the extent that it exceeds the reasonable pay for his services. If the minister owns his own home, the church must officially label part of the pay as housing allowance. Housing allowances are not subject to income tax if used for utilities, mortgage payments and other expenses of the home. Itemized deductions are available for real estate taxes and mortgage interest on the preacher's own home. A minister must pay self-employment taxes on the housing allowance.
Ordained ministers, members of religious orders and Christian Science practitioners may ask the IRS to be exempt from Social Security and Medicare withholding for religious reasons. The applicant must first tell the board or body that ordains him about the objection. Members under a vow of poverty need not apply because they are automatically exempt from paying Social Security or Medicare taxes. Only earnings from activities for the church or religious group are free from the self-employment tax. Chaplains in the United States military, public universities and prison systems do not qualify.
- Internal Revenue Service: Tax Topics: Topic 417: Earnings for Clergy
- Internal Revenue Service: Publication 517: Social Security and Other Information for Members of the Clergy and Religious Workers
- "Preparing Tax Returns for Clergy"; Dan Busby and John Van Drunen
- Internal Revenue Service: Schedule C (Form 1040): Profit or Loss from Sole Proprietorship
- Internal Revenue Service: Form 4361: Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners
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