There are a number of tax deductions for pastors, ministers, rabbis and other religious figures. For self-employed religious leaders, some of these are tax deductions anyone can take who works for themselves, while others are specifically for religious figures.
Tax Benefits for Clergy
Many tax documents refer to minister tax deductions or something similar, but the term minister applies to any religious leader trained and authorized to perform religious functions in his or her church, even in religious organizations that don't use that formal title.
A minister who is paid directly by a religious organization is often legally an employee, but if a minister is paid some or all of the time directly by congregation members for services like weddings, funerals and baptisms, then those are more like self-employment income. As with other professions, it's possible for some of a minister's income to be due to self employment and some due to employment for a particular employer.
All of those types of expenses are generally deductible from self-employment earnings, regardless of percentage of adjusted gross income. Additional types of expenses that are deductible include insurance purchased to cover a self-employed person who's not eligible for work coverage.
Specific to ministers and other members of the clergy is a deduction for housing provided by a religious organization or a housing allowance used to acquire housing and utilities while working for such an organization. The amount can't be more than is considered reasonable compensation for a minister's services.
If you're a minister, earnings from your religious services are generally subject to Medicare and Social Security tax. You will generally file through the self-employment tax system, even if you're otherwise legally an employee, and your housing allowance will be included in your taxable income for these taxes. Use Schedule SE on the IRS 1040 form to report these earnings and compute your tax.
Religious Exceptions and Exemptions from Tax
If you have a religious, rather than economic, objection to participating in Social Security, you are able to request an exemption using IRS Form 4361. IRS Publication 517 addresses self-employment tax issues for ministers in detail.
In some cases, if you've taken a vow of poverty as a member of a religious order, and transfer all of your income to that order and all of your income is from services to that order at its instruction, you may be exempt from income tax altogether. This doesn't apply if you earn separate income in your individual capacity rather than through the order.
Tax Changes for 2018
There are usually more allowable deductions for self-employment income than for ordinary employment income. In tax years prior to 2018, some unreimbursed expenses are considered deductible under a provision for miscellaneous itemized deductions, but that deduction is going away from tax years 2018 to 2025. Some employers, including churches, may be more willing to compensate their employees for such expenses once the tax deduction goes away, and such compensation is usually tax deductible.
In the case of a minister, those deductions might include supplies such as religious material and dress, subscriptions to religious publications and unreimbursed travel expenses, such as for attending a religious conference.
Deductions for self-employment income are largely staying the same, and a 20 percent new deduction that covers sole proprietorships, including many self-employed people, goes into effect as of 2018.
Tax Rules for 2017
In tax year 2017 and prior years, unreimbursed expenses for employees that exceed 2 percent of adjusted gross income are deductible as what are called miscellaneous itemized deductions. These deductions can include expenses like uniforms, including clerical dress, equipment and home office expenses that many people including religious leaders can rack up without being compensated by an employer.
To claim these expenses for years where they are available, you must itemize your deductions, so it's generally only worth doing so if your itemized deductions exclude the standard deduction. For 2017, the standard deduction is $6,350 for singles and married people filing single and $12,700 for married couples filing jointly.
- IRS: Publication 517: Social Security and Other Information for Members of the Clergy and Religious Workers
- IRS: Topic Number 417 - Earnings for Clergy
- Forbes: What Your Itemized Deductions On Schedule A Will Look Like After Tax Reform
- NOLO: The Self-Employed Health Insurance Deduction: A Valuable Personal Deduction
- IRS: Form 4361
- Church Law & Tax: Secular Income and Vows of Poverty
- Tax Policy Center: Navigating The TCJA’s Pass-Through Deduction
- NOLO: Miscellaneous Itemized Deductions: No Longer Deductible
- Forbes: IRS Announces 2017 Tax Rates, Standard Deductions, Exemption Amounts And More
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