Archive for Religion

The Minister’s Housing Allowance

The housing exclusion has been characterized as the most important tax benefit available to ministers. There are two commonly encountered situations in regard to housing for a minister. In the first case, the minister lives in church-provided housing. While this was quite common in the past the number of churches providing a parsonage for the pastor has declined significantly in recent years.

Under these arrangements, a minister lives in the parsonage without charge. In some cases, the church will also provide a housing or utility allowance to cover expenses incurred by the minister in maintaining the home. The value of the provided housing and allowance are not subject to income tax, but the fair rental value plus any allowance amount are subject to self-employment taxes. Read More

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Opting Out of Social Security For A Minister

One of the tax options given to a minister is the ability to opt out of social security. This is a step that should be taken after a great deal of deliberation, as the decision is irrevocable. In order to opt out, the minister must file Form 4361 and certify that he or she opposes, either conscientiously or because of religious principles, the acceptance of any public insurance (with respect to services performed as a minister), including social security and Medicare coverage. Note that the objection is to the use of ministerial earnings for public insurance. Economic considerations or other non-religious reasons are not valid factors for opting out. Unfortunately, many likely opt out for economic reasons. Some faith groups actively promote opting out for their ministers.

The minister opts out only in relation to ministerial earnings. If he or she is employed in a Read More

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The Minister’s Dual Tax Status

An ordained minister occupies a unique niche in the United States tax code, as he or she is a dual-status taxpayer. A minister is an employee for income tax purposes and is self-employed for social security and Medicare. This dual status has frequently been the source of confusion for both ministers, churches, and tax preparers. A complicating factor is that a minister may opt-out of social security and Medicare but that is a topic for another time.

It is proper for the church to issue a W-2 to the minister. A 1099-MISC is an incorrect treatment in this instance, although many churches do issue 1099-s to their ministers. Some churches do not fully understand their own tax-exempt status and do not give the minister any tax documents at year end. Obviously, this is also improper. Read More

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Who Is A Minister For Tax Purposes?

A minister occupies a unique niche in the United State tax code. He or she is considered an employee for income tax purposes, but self-employed for social security and Medicare. In addition, a minister is eligible for a housing allowance that is not subject to income tax, and has the choice to opt out of social security and Medicare.

Because of this unique tax treatment accorded ministers, it is important that the individual be properly qualified as a minister in order to receive this that treatment. One is not classified as a minister just by claiming to be one. The IRS has not directly addressed the issue of who is a minister. However, five factors have emerged that must be considered:

1. The person must be ordained, licensed, or commissioned by a local church or Read More

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IRS Agrees To Monitor Church Political Activity

The Internal Revenue Service recently announced that it will monitor churches for political activity. It is a rather convoluted route that brought the IRS to this announcement. It is actually a settlement between the IRS and the Freedom From Religion Foundation (FRFF) in which the FRFF had sued the IRS, alleging that the IRS routinely ignored complaints about churches engaging in political activity, promoting candidates, and speaking out on issues and proposed legislation. The Johnson Amendment, enacted in 1954, prohibits 501(c)(3) organizations from engaging in partisan political activity.

It is somewhat amazing that it required a lawsuit to force the IRS to investigate political activity by such organizations. First, as a result of a 2009 lawsuit, the IRS was ordered to make such investigations. The IRS maintained that it was not ignoring complaints of Read More

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