Overview of Clergy Taxes
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 (e.g., hospital chaplains may be treated as “wandering ministers”). If you are a minister performing ministerial services, it is important to know that you are taxed on wages, offerings and fees you receive for performing marriages, baptisms, funerals, etc.
When am I considered “self-employed”—and when am I considered an employee?
You are considered self-employed for purposes of Social Security and Medicare taxes
- The services you perform in the exercise of your ministry are generally subject to self-employment taxes (i.e., Social Security and Medicare taxes).
- Churches are not permitted to pay the employer portions of their pastors’ Social Security/Medicare taxes, although they are required to do so for lay employees.
- Most churches assist their ministers with Social Security/Medicare taxes by providing them with a Social Security/ Medicare offset of at least 50% of the tax. This benefit is considered taxable income to ministers.
- See IRS Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers, for more information.
You are considered an employee for income tax and/or retirement plan purposes
- Although you are considered self-employed for Social Security tax and Medicare tax purposes, you are considered an employee for income tax or retirement plan purposes.
- Generally, if you are employed with a salary and the church or organization has the legal right to control both what you do and how you do it—even with considerable discretion and freedom of action—you are generally considered a common-law employee…and income from the exercise of your ministry is considered wages for income tax purposes.
- For more information about the common-law rules, see IRS Publication 15-A, Employer’s Supplemental Tax Guide.
What portion of my parsonage or housing allowance is taxable?
- Gross income (i.e., income subject to Social Security and Medicare taxes) of a licensed, commissioned or ordained minister does include the fair rental value of a home (a parsonage provided)—or a housing allowance paid—as part of the minister’s compensation.
- Net income (i.e., income subject to federal income tax) 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.
- Check out the Housing Allowance Advantage with MMBB section for more information covering the housing allowance for ordained members.
As always, feel free to contact a senior benefits specialist at 800.986.6222 or firstname.lastname@example.org for additional assistance.