This was a story told to us by another Tax Advisor that we promised to protect their privacy if they shared their story with us and allowed us to share it with our audience. Therefore, we are publishing this under my name and encourage your comments at the end of this blog post.
Churches occupy a distinct place in the tax code of the United States. They are tax exempt, but that is not where the uniqueness lies. Many types of charitable organizations are considered tax-exempt non-profit organizations. Most organizations wishing to obtain tax exempt status must first file Form 1023 (or the new Form 1023EZ) with the IRS, seeking approval as an IRS-qualified tax exempt organization. The unique aspect of a church is that qualifying as tax exempt is automatic if it meets the IRS definition of a 501(c)(3) organization:
1. The organization must be organized and operated exclusively for religious, charitable, scientific, or other charitable purpose.
2. Net earnings may not inure to the benefit of any private individual or shareholder. Read More
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