Well, it’s tax time and as usual, I am slogging thru the sea of rules for ordained ministers and clergy. Since I direct a Seminary that ordains several ministers per month, I am also asked tax questions by our alumni this time of year. I came across some very big tax breaks for ministers I had forgotten about! With this economy, we clergy need every tax break we can get.
For example, all these years I’ve been filing my taxes as a member of the clergy, first as an ordained minister / pastor, priest and then bishop, and all these years as an advisor to hundreds of ministers and rabbis we have ordained over the years (we’ve been ordaining ministers since 1987), I have been missing out on some of the many tax benefits.
Most ministers know you can (with a bunch of paperwork) exempt yourself from paying federal income taxes and social security. You then have to figure out your own retirement, but there are tons of cool retirement benefits for pastors and ministers, so it’s not that bad. I personally pay into the social security system every year called self employment tax. Ministers can report income as self-employment income if their church issues them a 1099 (which is easier than you think, church founders and directors – as church director, I have to sign my own 1099, ironically). The church can also pay you with a W2 – also not hard to draw up if you have founded a church and are now worried sick, just get organized in January to make the deadlines. Some ministers even get one W2 showing salary paid and a 1099 for all the fees they earned from performing a baptism, officiating a wedding, funeral, etc. My church doesn’t really make enough to pay me a salary, but I do get some fees as a wedding officiant, for doing an in person ordination ceremony, etc. So the church pays me every year with a 1099 MISC.
What a lot of ministers are missing out on and which I used to not really care about, is the housing allowance. If you have founded a church as a non-profit and it is bringing in donations and finally able to pay you the minister, (or rabbi, chaplain, priest) a salary or with a 1099 for a bunch of fees, you can subtract a huge amount of that income from your taxable income – that is you don’t have to pay taxes on it. The housing allowance means you can basically “deduct” not only your mortgage or rent payment, but also utilities, repairs and even furniture purchases. IRS Publication 517 which you can find online easily, explains a lot of the details. One of our ordained ministers recently ordained founded their own church and is now issuing themselves a salary. The board of directors (you only have to have 3 people, one of which is yourself to found a church) then made a resolution at their very first meeting to pay her a salary and also a housing allowance of $2000 a month, which is the going rate in her area for a furnished house plus utilities.
To be able to use the housing allowance, they said it is best to be an ordained minister, not just a licensed or a commissioned minister. In an audit if you are a “duly ordained minister” you have the best chance for the housing allowance to be upheld by the IRS. Licensed or commissioned ministers do not normally qualify for it. At first I thought that doesn’t make sense, but then again we have always “duly” ordained our candidates never really having a need to make a licensed or commissioned minister.
Those who found and run a wedding chapel also can benefit from the ordained minister tax breaks, and the wealth of info in the online IRS publications pertaining to clergy and members of religious orders.
Render unto Caesar that which is “his” would now be “Render unto Uncle Sam!”
Email me if you have any questions about becoming ordained.