Clergy Tax: Deductions for Pastors
In many cases clergymen are considered both an employee of the congregation as long as they are paid by a salary from the church. They may also be considered self-employed if additional tasks are performed that are outside the regular duties outlined by the salary agreement.
When it comes to clergy tax, if a pastor chooses to itemize deductions, there are certain deductions that they are entitled to including:
A number of expenses can be incurred when performing the duties of a pastor. To properly itemize these deductions an IRS form 1040, Schedule A needs to be submitted. A Form 2106, Employee Business Expenses Form may also need to be submitted. Examples of work expenses include travel costs including mileage, airfare, lodging and meals. Another example is the cost of clothing if you are expected to wear specific attire.
Members of the clergy may also be entitled to tax breaks through exemptions. If clergy is ordained, licensed or commissioned they may file IRS Form 4361 which exempts qualified clergy from paying Social Security which removes the social security income tax withholding from their income.
If a pastor receives a housing allowance or has use of a church parsonage they may be required to report the fair market value of the home or the housing allowance as part of their total income. If clergymen own their own homes then they may be able to claim housing deductions for the mortgage insurance and property taxes paid during the year. Also, if they work out of their homes or counsel people in their homes they may be entitled to a home office deduction as well.
Ministers can benefit from a tax-exempt housing allowance. All expenses for housing such as furniture and maintenance can be legally deducted in this case as long as accurate record-keeping is provided. This allowance is exempt from federal and state income taxes but is subject to self-employment taxes.
In any case, figuring out clergy tax can be quite complicated and it’s a good idea to review deductions with a tax professional to ensure that you’re getting the deductions that you’re entitled to.