Is a Minister’s Outside Income Taxable?

When a minister’s income is reported on a year-end W2 or 1099, it is straightforward that the income is taxable and must be reported as such. However, it may be less clear to a minister if other forms of income should be reported as taxable.

A minister may receive payment from an organization other than the minister’s employing church. For example, another church may pay the minister to be a guest speaker. Or a conference may pay a minister to speak in one of its sessions.  

A minister may also be paid directly by someone who attends the minister’s own church for performing a special service, such as conducting a wedding ceremony or presiding over a funeral proceeding.

In other instances, the minister’s own church may pay the minister outside of the normal payroll procedures for an appreciation gift, toward a special trip in recognition of service, or from the collection of a “love offering.”

Generally speaking, all of the types of payments listed above have one thing in common: they are all usually considered taxable income by the IRS and should be reported on the minister’s personal tax return. The Internal Revenue Code defines taxable income very broadly, referring to it as “all income from whatever source derived . . . .”

Payment for speaking engagements by other entities, even if not reported by those entities on a W2 or 1099, are clearly within the definition of taxable income in the tax code. Ministers are obligated to report this income and pay applicable taxes. It is possible that the minister may be able to realize a tax benefit for expenses related to the speaking engagement, which may lower overall tax liability.

Payments from people within the church for weddings, funerals, or similar services are also likely taxable. The minister is being paid in exchange for performing a service. Even if the payor considers the payment a gift, this does not change the tax implications of the payment in the view of the taxing authorities.

Because the minister is employed by the church and paid in an employer/employee relationship, any funds given to the minister by the church as a “gift,” regardless of the occasion for the gift, are likely to be considered income paid for services by the IRS.

Retirement gifts are more complicated. As with any area of uncertainty, a minister or church should consult with a tax professional for assistance in determining whether a retirement gift or other unusual gift, gives rise to taxable income.

If payments that the IRS considers taxable income are not treated as such, there may be consequences both to the individual receiving the funds and to the organization making the payment.  Recipients may be subject to interest and penalties for income not properly claimed as taxable. Churches and other nonprofit organizations may be subject to sanctions and even jeopardize their tax-exempt status for not properly documenting taxable payments made to individuals.

Clergy Financial Resources
Tax I Payroll I Bookkeeping I HR
11214 86th Avenue N.
Maple Grove, MN 55369

Tel: 1 (888) 421.0101
Fax: 1 (888) 876.5101

Pro Advisor Support
Schedule an Appointment
Learn More About Services

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