By Seth Hawkins
As a minister, you have a unique calling in your life. You also have a unique status under the U.S. Internal Revenue Code, and with this status are some unique options and rules to consider when it comes to tax time. Just because a congregation designates someone as a minister does not mean that person is automatically qualified as a “Minister for Tax Purposes” in the eyes of the IRS. You and your church need to understand what it takes to be eligible so that you both can comply with the federal tax code and withholding requirements.
The IRS has not provided direct guidance on its criteria, but answering the following five questions can help with that determination:
- Are you ordained, licensed or commissioned?
- Do you administer the ordinances (baptism and the Lord’s Supper) and perform ceremonial duties such as marriages and funerals?
- Do you conduct religious worship?
- Do you manage or direct organizational activities?
- Are you considered to be a religious leader by the church?
The first question is the only one that is absolute. There must be evidence that an individual church or denomination has ordained, licensed or commissioned you. After that, you must be able to answer “yes” to most of the other four questions to qualify. Many laypersons may perform the duties and roles described without being ordained, licensed or commissioned. That’s why answering “yes” to the first question is essential.
As a Minister for Tax Purposes, you have a dual tax status. Generally, you will be classified as an employee of the church for federal income tax purposes but considered self-employed for Social Security purposes. You are allowed to opt out of Social Security and Medicare, although ministers often determine it is not advisable to do so.
You are also exempt from federal income tax withholding. This exemption means you can use the quarterly estimated tax procedure to pay taxes unless you elect voluntary withholding on Form W-4 with your church.
Finally, the church may designate a portion of your salary as a housing allowance. This allowance is intended to cover housing expenses and is excluded from gross income for federal income tax purposes — but not for self-employment tax purposes.
Remember that these rules and allowances only apply to earnings from services performed in the exercise of your ministry.
Importantly, a church should never ordain, commission or license anyone to make that person eligible for a minister’s housing allowance. Churches should ordain, license or commission clergy for theological reasons, not tax reasons.
As a minister, you are the one who must determine whether you can be considered a Minister for Tax Purposes. If you have any questions about your qualifications, contact a tax advisor with experience in ministerial tax issues.
Navigating these and other ministerial tax issues can be complicated, but GuideStone® has developed resources to make it easier for you. It’s part of our mission to enhance the financial security and resilience for those who serve the Lord.
For more information about common tax-related questions and considerations for ministers, please visit GuideStone.org/MinisterialResources or call us at 1-888-98 GUIDE (1-888-984-8433), Monday through Friday, from 7 a.m. to 6 p.m. CT.
For tax questions, you may also choose to contact a certified tax professional familiar with ministerial taxes.
This educational information is not intended as legal or tax advice. Ministers or churches with specific legal or tax questions should consult a legal or tax advisor who understands ministerial tax issues.
Seth Hawkins provides leadership to GuideStone’s Retirement Solutions team that serves institutional clients. Since joining GuideStone in 2008, he has provided leadership to various areas, including Customer Solutions, Retirement Product Management, Mission:Dignity® and Insurance Product Management.
Seth holds a bachelor’s degree from Howard Payne University and an MBA from Texas A&M Commerce and is a CERTIFIED FINANCIAL PLANNERTM professional.
Seth grew up as a pastor’s kid (PK) and missionary’s kid (MK), spending most of his formative years living overseas, where his parents served as church planters. This experience fueled his passion for serving those who serve the Lord®.
Today, Seth spends most of his free time entertaining his three young children. When time allows, he enjoys traveling, hiking and staying active.