Are ministers employees or self-employed?
The answer is “both.” Ministers have what is commonly referred to as “dual tax status.” For federal income tax purposes, a minister is generally treated as a common-law employee. For payments into Social Security, the minister is always self-employed. This is an IRS regulation and not an election. When a church hires an employee, one…
Is Healthcare Sharing Tax Deductible?
If your church is experiencing some sticker shock with your 2021 health insurance increases, you’re not alone. Many people are searching for alternative healthcare solutions, including health reimbursement arrangements (HRAs) and healthcare sharing ministries. Healthcare sharing ministries are cost-sharing programs or private healthcare systems (PHCS) that are set up as a faith-based 501(c)3 not-for-profit organization. Members share religious…
Is it better to have an accountable or a non-accountable reimbursement plan?
If you are working as a pastor or minister, you probably have some expenses. They may be things like religious supplies, specialty clothing, or auto expenses. Some churches are able to reimburse these expenses, but take care; the way you structure these reimbursements has a big impact on your income taxes. There are two basic…
What is Honoraria and how do I report it on my taxes?
You may have heard the term “honoraria” refer to weddings, funerals, baptisms, or any number of other activities. But where does the term honoraria actually come from? The dictionary definition of Honoraria is “a payment for a service which custom or propriety forbids a price to be set.” There is usually no expectation or requirement…
FAQ: Can I use nursing home expenses for the housing allowance? Can I deduct them anywhere else?
For clergy who are living permanently in a nursing home, they can use some (but not all) of their nursing home expenses for the housing allowance. For example, the rental cost of their room and the utilities are eligible for the housing allowance. The food and medical care are not eligible for the housing allowance….
FAQ: If I earn too much, will that put me into the next tax bracket?
A very common question we receive is regarding income and tax brackets. Many people are concerned that if they earn too much money, it will result in a huge increase in taxes from entering the next highest tax bracket. While entering a higher tax bracket increases your tax rate, it is important to note that…
The Parsonage Allowance
IRC § 107 provides an exclusion from gross income for a “parsonage allowance,” housing specifically provided as part of the compensation for the services performed as a minister of the gospel. This includes the rental value of a home furnished to him or her as part of compensation or a housing allowance, to the extent…
What is the housing allowance?
A licensed, commissioned, or ordained minister who performs ministerial services as an employee may be able to exclude from gross income the fair rental value of a home provided as part of compensation (a parsonage) or a housing allowance provided as compensation if it is used to rent or otherwise provide a home. A minister…
Non-taxable benefits for ministers
Disability Insurance – The church can reimburse its pastor for this premium or pay it directly. Health Insurance – Group health insurance plans are a qualified fringe benefit. If the church does not qualify for a group plan because there is only one employee, you will need to establish either a One Person Health Reimbursement…
Penalty abatement from the IRS?
Due to COVID-19, the due date for filing your 2019 tax return was postponed to July 15, 2020. If you didn’t request an extension of time to file or send in your tax return by July 15, the IRS may charge a failure to file penalty. If you didn’t pay your taxes by July 15, the IRS…
