IRS Rules Regarding Medical Insurance Deductions for Pastors

There are some significant differences in the way ministers' tax deductions are handled by the IRS.

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The IRS tax rules include several special provisions for members of the clergy. In most cases, these rules are similar to those that govern self-employed people. Most pastors are considered employees of the church to which they minister. However, in some cases, pastors may be considered self employed. The specific medical insurance deduction provisions a pastor must adhere to depend largely on whether he is considered self-employed or an employee.

Employment Status

To understand which IRS rules govern you as a pastor, you must determine whether you are legally self-employed or a common-law employee. If a pastor serves a particular church or organization that more or less determines his schedule and he receives a salary, he is considered an employee for most tax purposes. This includes the rules governing medical insurance deductions. If a pastor is not directly employed by a church, but offers ministerial services to a variety of individuals or congregations, he is considered self employed and is governed by the IRS rules for self-employed ministers.

Common Law Employee Pastors

Medical insurance deductions for pastors who are legally considered employees are the same as they are for any other employee. As of July 2013, if the pastor receives his medical insurance as part of his compensation from the church, he may opt to have any portion of the insurance premium he contributes deducted pre-tax. According to the Clergy Financial Resources website, pastors, like anyone else, may deduct any medical expenses -- including, but not limited to medical insurance -- that exceed 7.5 percent of their adjusted gross income.

Self-Employed Pastors

If a pastor is legally considered self-employed, he must follow the rules for self-employed persons -- which allow you to deduct the amount spent on medical insurance -- with a few small differences specific to ministers. The IRS does not allow a self-employed pastor to deduct medical insurance expenses if he is eligible for medical insurance through any employment he or his spouse holds. This point is especially important for bi-vocational ministers, who may be tempted to forego insurance through their secular employer under the incorrect assumption that they will receive a tax deduction for purchasing their own insurance. Self-employed pastors who are eligible to deduct their medical insurance costs may not claim a deduction greater than their net earnings from their ministry.

Tax Advice

There are several factors that can affect a minister's status as self-employed, employee or both. These can have significant implications regarding what you can or cannot deduct from your taxes. Because of this complexity, pastors -- especially newer pastors -- should seek professional tax advice. Some denominations provide these kinds of services free or at a low cost for their ministers. If such services aren't available, seek the advice of a competent accountant or tax lawyer who has experience dealing with churches and ministers.