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Clergy Taxation: Understanding the Unique Tax Aspects

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Wednesday, February 21, 2024

Recorded event now available

or call 1-800-926-7926

This course will explain the unique aspects of tax return preparation and planning for members of the clergy. Our panel will cover the treatment of earnings by ministerial employees, including employment by a congregation, retirement income, Social Security, gifts, and housing allowances.

Description

Working with ministers in the area of federal taxation encompasses several unique aspects including housing Allowances, correct wage reporting on Form W-2, utilizing unique retirement options, properly taxing gifts, and understanding their unique treatment for Social Security.

Housing/Parsonage Allowance: Blessed by the Seventh Circuit, clergy continue to benefit from a housing allowance that allows the exclusion of housing related expenses from income tax. When properly designated, a clergy member pays no income tax on his/her housing allowance (within certain limits). Housing allowance, however, is reportable and taxable for self-employment tax. In some circumstances, even retired clergy can qualify for a housing allowance.

Security Participation: In limited circumstances, ministers can elect out of Social Security. All clergy, even those not electing out, are considered self-employed to pay into the Social Security system. No Social Security is withheld and matched on clergy pay, even for those receiving a Form W-2.

Earnings for Independent Ministry: Clergy regularly receive honorariums or fees for providing additional services, including weddings, funerals, baptisms, and other speaking engagements. Compensation from these types of self-employment activities is reportable on a minister’s Schedule C. Computing net SE income can be the most challenging aspect of ministerial returns. Clergy may also receive “gifts” from outside sources or congregation members that need to be considered. These create circumstances where additional income is reported and related expenses are deducted.

Listen as our panel explains the many facets of clergy taxation, including properly designating and reporting housing allowances, determining worker classification for employee or contractor treatment purposes, deducting expenses, and differentiating non-taxable gifts from taxable income.

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Outline

  1. Who is a minister?
  2. W-2 or independent contractor
  3. Housing allowance
  4. Forms of income including gifts and honorariums
  5. Fringe benefits
  6. Retirement considerations

Benefits

The panel will review these and other notable issues:

  • Who is a minister for tax purposes?
  • How does the housing allowance work and what are eligible housing costs for clergy?
  • What income or benefits are taxable to ministerial employees?
  • Why do clergy pay self-employment tax?
  • What happens with gifts and other income received by clergy?
  • How to properly prepare a clergy employee’s Form W-2?
  • How can retirement best be provided to clergy?

Faculty

Fowler, Sandra
Sandra Fowler, CPA, CPP
Payroll Services Manager
Sommerville & Associates

Ms. Fowler joined the firm in August of 2002. Sandra holds a Bachelor of Science in Business from Southwestern...  |  Read More

Sommerville, Elaine
Elaine Sommerville, CPA
Shareholder
Sommerville & Associates

Ms. Sommerville is licensed as a certified public accountant by the State of Texas. She has worked in public accounting...  |  Read More

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