Tax Preparation for Pastors: Medical Insurance Deductions

Medical Insurance is a major factor when it comes to family finance whether you’re a member of the clergy or not. With always- increasing medical costs, the issue of medical insurance and figuring all possible deductions is essential.  In general, tax preparation for pastors can be somewhat complicated and oftentimes requires the assistance of a professional tax preparer. However, when it comes to rules concerning deductions for medical insurance, the rules are the same for pastors and clergy as they are for the general public. But just in case you’re wondering here are guidelines for medical insurance deductions if you’re getting ready to prepare your 2012 taxes.

Schedule A

Like any other taxpayer, pastors can deduct medical and dental expenses for themselves, their spouses and any dependents as long as they exceed 7.5% of adjusted gross income. These types of expenses, which also include payments to medical and dental insurance premiums, can be deducted from Schedule A on Form 1040 of your 2012 taxes.

Self Employment

Pastors may be considered an employee of the congregation if the pastor is paid a salary by the church organization. However, a person may also be considered self-employed if he performs additional duties and responsibilities outside the realm of duties covered by the salary.

If you are considered a self-employed pastor and are therefore not eligible to participate in a subsidized plan offered by your employer, you have the ability to deduct the full amount you paid for medical and dental insurance for yourself, spouse and even dependents. During tax preparation, this deduction should be made as an adjustment to income on Form 1040. Note that expenses deducted under this provision can’t be claimed as a medical expense deduction on Schedule A.

HSA Contributions

HSA’s or Health Savings Accounts are bank accounts that are provided by a church and created to meet the pastor’s and his family’s medical needs. The funds may be used as the pastor sees fit including medical expenses like doctor visits or medication or may also be used to purchase health insurance. If you have a qualified Health Savings Account you can deduct your contributions and the interest earned is tax-free. The benefit of HSA accounts is being able to pay almost any health-related expenses from funds in these types of accounts. HSA account-holders must have a high-deductive health plan that qualifies under HSA rules.