Clergy Status is a person who has been granted ecclesiastical authority by an association, denomination, or state through the rite of ordination, commissioning, or licensing.

1. Generally, an ordained minister has a Master of Divinity from an accredited theological school and is recognized through the rite of ordination to preach and teach the gospel, to administer the sacraments and rites of the church, and to exercise pastoral care and leadership. 
2. A commissioned minister is a layperson who is authorized to perform specific church-related ministry which is recognized by that Association but does not require ordination or licensure. 
3. A licensed minister is one who has been recognized and authorized to perform specific duties in a designated local church. A license is granted by the association or state.

Compensation should be fair and just, taking into consideration the size of the church and the clergy person’s experience, skills, and education. Other practical factors that churches must consider are their income and their geographical setting.

Clergy should be full participants in discernment and discussion around their compensation. They have a right and, indeed, an obligation to share with an appropriate designated body whatever concerns, hopes, and needs they may have with regard to compensation. Even in a situation where resources are limited and the church is unable to pay what it should, the fact that the minister is consulted is important for clergy morale and open communication. Negotiations with the minister or ministers each year should begin several months before the next year’s budget is drafted. Recommendations for changes in compensation can then be brought forward for inclusion in the budget building process.

Considerations

Size of the church – These guidelines recognize that church size may make a difference in a church’s ability to compensate and in the expectations the church places on its minister.

Experience and skills of the minister – Generally, ministers who have served in ministry for several years will have more skills and experience. It is appropriate that such be recognized with higher compensation.

Cost of living – Congregations should increase the minister’s salaries annually to keep up with the cost of living. The COLA annual percentage can be found at http://www.bls.gov

1. Senior Minister: The basic cash salary is the amount of actual dollars paid to the minister. Cash salary does not include housing, utilities, allowances, benefits, Social Security, or reimbursable expenses.

2. Associate Minister: The recommended salary for Associate Clergy is 85-90% of Senior Ministers for comparable experience and education. The expectation is that this figure would be at least equivalent to the salary of ministers of churches with fewer than 200 members, i.e., at the level of the average elementary teacher’s salary. The special ministry of a clergy associate should be highly valued and compensated equitably.

3. Part-Time Senior and Associate Ministers: The basic cash salary for part-time ministers should be determined as a percentage of the full-time package.

Example: A church with 100 members and a parsonage hires a part-time minister with 5 years of ministerial experience for halftime. The recommended cash minimum salary is $38,041 x (50%) or $19,020.50.

4. Interim and Intentional Interim Ministers: The interim minister will serve a church during situations that demand specialized skills, training, and responsibilities. A fulltime interim minister should receive the equivalent to the previous minister’s salary along with all the housing and benefits that the previous minister received. It is recommended, however, that consideration be given to compensating the interim minister at a higher level to help stretch the congregation toward adequate compensation for the next settled minister, which in all likelihood is going to be considerably higher than their previous minister.

5. Short-term Pulpit Supply Minister: Where a congregation needs only worship leadership, a pulpit supply minister may be contracted for one or more consecutive Sundays. The recommended per-service compensation is $150, plus travel expenses at the current IRS rate.

6. Commissioned Ministers: For Commissioned Ministers, compensation should reflect experience, education, and special training. It is suggested that commissioned ministers be compensated at 60% of the guidelines for base salary and housing. 

7. Licensed Ministers: For Licensed Ministers, compensation should address fairly the minister’s needs in relation to the time, training, and responsibilities required by the position. Churches should consider 80% of the recommended guidelines for base salary and housing, considering also average compensation and benefits received in the community.

Compensation

Cash compensation can include the following four components. Plus, benefits. Consider the tax implications of each component as you design this part of the package.

Cash salary
A minister’s cash salary can be subject to federal, state, and local income taxes. It also serves as the basis for calculating allowable retirement plan contributions.

Experienced ministers bring a level of skill to pastoral ministry for which they should be compensated. It is also true, however, that many ministers who have entered the ministry as a second career bring a wealth of experience and skill to ministry gained in previous work. It is recommended that other professional experiences be
included as a factor in calculating the experience supplement for the second career minister.

Housing/parsonage allowance
A second, major portion of a minister’s compensation is housing, provided either in the form of a housing allowance or the rent-free use of a church-owned house.

1. Housing Allowance: Homeownership is important to many clergy because it allows them to build equity in real property and gain annual appreciation. This equity is then available for use as collateral for loans or as payment toward retirement housing. Homeownership also insures that a minister’s family will have a home in the event of the minister’s untimely death.

The housing allowance should be a cash package sufficient to allow the authorized ministers to buy or rent, furnish, and maintain a median-priced home in the church’s community. The median price range for a home varies considerably from place to place. Information for particular communities can be found by contacting a local real estate agent.

The minimum housing allowance should be 1% per month of the value of a median-priced home in the community. This figure covers the costs for a 30-year fixed-rate mortgage at 5% interest, with a 5% down payment, along with other associated housing costs: furnishing, property taxes, maintenance, and insurance.

a. Example – If a median-priced 3-bedroom home in a community is $200,000, the church’s minimum cash package for housing would be $2,000 per month or
$24,000 per year.
b. If a median-priced 3 bedroom home is $275,000, the church’s minimum cash package for housing would be $2,750 per month or $33,000 per year.

Several factors must be taken into consideration, by both the minister and the congregation, when a housing allowance is provided:

The IRS states that the maximum amount of housing allowance which clergy may receive and exclude is the lesser of:

1. 1. 1. 1. The fair rental value of the furnished home plus utilities
         2. The amount actually expended to provide a home
         3. The amount officially designated by the church.

For the actual amount of the housing allowance to qualify by IRS standards as tax-free income, it must be clearly designated by the church and be formally approved annually by the appropriate church board prior to the beginning of payments. This approval must be recorded in official minutes and retained in the church files. Also, the minister must keep records such that she or he can show that the actual housing costs equal the entire housing allowance.

• • • Any amount of the allowance that is not actually spent on housing is taxable income for the minister.
    • A housing allowance is fully taxable for Social Security purposes.
    • A housing allowance can be spent on any items required to provide a home, such as the monthly mortgage payment (interest and principal), taxes, insurance, furniture, furnishings, home repairs, furniture, new appliances, yard care, mowing, snow removal, and all utilities.

Social Security-Medicare tax offset
Clergy, considered as self-employed for Social Security purposes, must pay the current 15.3% (Schedule SE) on the cash salary plus housing allowance or fair market rental value of the parsonage with utilities. Because this is not matched by any employer, churches are urged to contribute 7.65% of the minister’s salary plus housing allowance (or 7.65% of 130% of base salary if a parsonage is provided) for Social Security, as it must do for regular FICA employees. The difference is that this is paid directly to the minister and considered as a Social Security Allowance or Offset. This is taxable income which must be included with taxable wages on the minister’s W-2 form and reported on the minister’s tax return.

Professional Expenses
Ministry expenses incurred are considered church-related business expenses and are not part of the minister’s compensation package. These resources will assist the minister in fulfilling conventional expectations with the church, maintaining collegial relationships, staying connected with associations, denomination, and its activities, developing new and varied skills, and remaining creative and excited about new opportunities for ministry.

• • Travel: The cost of transportation incurred by the minister in relation to pastoral duties should be considered annually. Reimbursement for automobile travel should be at the allowable rate by the IRS. Information regarding the current reimbursement rate can be found in IRS Publication 463. It is necessary for the minister to provide to the church a daily record of trips taken, briefly noting the purpose of such trips, the distance traveled, and other expenses incurred including tolls and parking fees. Other transportation costs (airline, taxi, train) should be also be reimbursed. Expense vouchers should be submitted on a monthly basis.

    • Meetings: The church should pay for its minister to attend the meetings, conferences, and gatherings of the Association, Conference, and other educational programs. 

    • Other Professional Expenses: The costs of subscription to religious journals, entertaining guests of the church, cleaning or purchasing of vestments to be worn in worship, and professional dues are all legitimate professional expenses and should not be taken from salary compensation. Upon the written and timely account of these expenditures, they should be reimbursed by the church.

Equity Allowance
Equity allowance are designed for ministers living in a parsonage. Unlike homeowners, ministers living in parsonages do not build equity in their homes. Many churches help compensate for that by paying an equity allowance that is not subject to federal income tax.

Clergy Financial Resources offers several options to help you with your tax questions or filing. Here are two options available. 

• • Pro Advisor I Tax Support
    This support service provides you comprehensive answers to your notice questions. This support service is available at a flat rate of $45.00 for each 30-minutes session.
  • Learn More About Tax Services Designed for Clergy
    As a specialist within our industry, our annual tax service is uniquely designed and bundled with three valuable services; Clergy Support which provides answers to your questions throughout the year; tax preparation to ensure compliance while minimizing your tax liability; Estimated Payment Support to prevent those unwanted surprises.

Clergy Financial Resources reviews unreimbursed ministry expenses as part of the 1040 review process, to make sure that deductions aren’t missed. If you are looking for someone to prepare your 1040 return, visit our website at https://www.clergyfinancial.com/services/clergy-tax-preparation/

Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

For more information or if you need additional assistance, please use the contact information below.

Clergy Financial Resources
11214 86th Avenue N.
Maple Grove, MN 55369

Tel: (888) 421-0101 
Fax: (888) 876-5101
Email: clientservices@clergyfinancial.com