CLERGY and NON-PROFITS
Tax information for religious and non-profit employees
As an Independent Contractor:
- Clergy receive a 1099 from organizations receiving their services.
- Self-employed tax return is filed (Schedule C).
- No withholdings are taken for Social Security, Federal income tax or State income tax as noted above.
- Any housing allowance is not included in income. However, housing allowance is subject to self employment tax.
- All clergy-related business expenses may be deducted and are not subject to the excess of 2% income threshold.
Fringe Benefits
Fringe benefits given to clergy do not have to be included as income provided the clergy does not utilize them for personal use. If used for personal use, you must calculate the value of the percentage of your personal use. Such fringe benefits could be:
• Automobile
• Computers
• Entertainment
• Educational Benefits
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• Airfare
• Travel Expenses
• Moving Expenses |
- The rental value of a home furnished to an ordained minister is exempt from tax.
- A rental allowance provided to a minister by a church for the purpose of the minister renting a home is tax exempt.
- Any rental allowance included in a retired minister’s pension payments is also exempt.
- Housing allowance income exclusions only apply to ordained, commissioned or licensed clergy. Any unused amounts must be reported as miscellaneous income.
- A housing allowance must be spent on housing related expenses or it is considered self-employed income subject to federal, state and self-employement taxes.
- A minister’s housing allowance is not subject to income tax, but may be subject to the self-employment tax. For the housing allowance to be excluded from income, the church organization that employs your must officially designate the payments (in the minutes) as a housing allowance BEFORE payment is made.
Caution: Housing provided or a housing allowance paid to a member of the clergy for teaching or administrative services by a non-church affiliated college, university or other institution may not be excluded from income.
Tip: Have your church adopt an accountable business expense reimbursement plan. Without one, unreimbursed business expenses are only deductible in excess of 2% of your income and are limted on a pro-rate basis to the extent of any housing allowance received (Deacon Rule).
Accident and Health Plans
Ministers do not have to include as income the amount their church or religious organization pays for accident and health insurance on their behalf. This includes most reimbursements for out of pocket medical treatment or disability income.
Retirement Plans-403(b)s
Many religious, charitable, educational and public non-profit organizations offer deferred compensation retirement savings plans. These plans are commonly called 403(b). These plans are usually funded through the purchase of annuities or custodial accounts comprised of mutual funds.
Contributions made to qualified retirement plans of a church or religious organization:
- may be excluded from income
- will be taxed at withdrawal as ordinary income
- will incur a 10% penalty if withdrawn prematurely
Tip: Contributions made for a self-employed minister to a qualified retirement plan of a church or religious organization may be excluded from income.
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