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CLERGY and NON-PROFITS
Tax information for religious and non-profit employees
Members of the clergy are in many ways treated like non-clergical taxpayers, but there are special tax treatments that recognize their position as members of a church.
Income
General Rules of Income - for all taxpayers U.S individual taxpayers are required to report as gross income all compensation for personal services in the year they receive it, no matter what the form of payment. This includes:
• Salaries/wages
• Bonuses
• Commissions
• Retirement Pay
• Tips
• Profit sharing
• Director’s Fees
• Jury Fees
In addition to the guidelines above, Clergy must report compensation such as:
• Marriage Fees
• Baptismal and Funeral Offerings
• Other Stipends received
Employee or Self-employed?
For tax purposes, members of the clergy may be treated as either employees (preferred by the IRS) or independent contractors. In either case, with approval from the IRS, clergy may decide to be made exempt from self-employment (Social Security and Medicare) taxes. If an exemption is claimed, no benefits are available to the clergy member under either program in retirement. So unlike other taxpayers who are required to pay Social Security and Medicare, clergy may choose whether or not to participate (making this election is not as easy as it seems and must be approved by the IRS).
As an Employee:
Clergy receive a W-2 statement of income from their employer (church) organization.
As discussed, Social Security should not be withheld. A minister is always considered self-employed when it comes to Social Security, the minister must file Form 4361 on a timely basis to opt out of Social Security withholdings.
Federal income tax withholding is voluntary, but if it is not withheld, quarterly estimated tax payments must be made.
Housing allowance is generally exempt from income as long as it is spent for housing related expenses.
However, housing allowance is subject to self employment taxes.
Only expenses that exceed 2% of income can be deducted.
