Clergy Tax Law

Income and Deductions

Questions?

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All Rights Reserved

This 2022 webinar is designed to provided educational material for Luther Seminary related to Clergy Tax Law, and should not be viewed as legal or tax advice. If legal, tax, or other expert assistance is required for any other year, seek the services of a clergy tax professional.

Advance permission must be obtained from the copyright holder. Contact information is listed below:

Clergy Financial Resources (Mark and Josh Friesen)�11214 86th Avenue N.�Maple Grove, MN 55369��Tel: 763.425.8778�Fax: 1.888.876.5101��E-Mail: cfr@clergyfinancial.com�Web Site: www.clergyfinancial.com

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Clergy Income and Deductions

• Taxable Income
• Non-taxable Income
• Accountable Reimbursement Plan
• Non-accountable Reimbursement Plan
• Qualified Ministry Expenses

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Taxable Income

• Most income you receive is considered taxable and must be included on form W-2 (unless specifically excluded by law).
• Taxable income – box 1
• Housing – box 14
• Generally, clergy income is not reported on 1099-NEC.
• Form 1099-Misc. is never used to report clergy income

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Examples of Taxable Income

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• Wages
• Pulpit supply
• Honorarium
• Bonuses and special occasion offerings
• Personal use of church vehicle
• Severance pay
• Social security allowance paid by the church
• Auto or professional allowance/Professional nonaccountable plan
• Forgiveness of debt (church gives you a loan and then forgives the debt)
• Holy Land trips paid by the church
• Payment for personal expenses
• Spouse’s travel expense paid by the church (no legitimate ministry purpose)
• Interest on below market loans
• Love gifts (from the church to minister)
• Personal/spouse/family expenses relating to sabbatical compensation
• Individual health insurance paid or reimbursed by the church
• Housing allowance (SECA only)
• Fair rental value of the parsonage (SECA only)
• Utilities paid by the church (SECA only)

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Other Taxable Income

Honoraria Income (Self-Reporting)

• Weddings
• Speaking
• Funerals
• Baptisms

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Holiday Gifts

• If your church or members gives you a turkey, ham, or other items of nominal value at Christmas or other holidays, you do not have to include the value of the gift in your income.
• If your church gives you cash, a gift certificate, or a similar item that you can easily exchange for cash, you include the value of that gift as extra salary or wages regardless of the amount involved.

�Moving expense

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Non-Taxable Income

• Qualified love gifts (person-to-person and within limits)
• Cannot be solicited
• Must be spontaneous in nature
• Must be clearly ascertainable as a gift with no service attached
• Cannot qualify as a tax donation for the donor
• Are motivated out of affection of an individual for another individual
• Reimbursements from an accountable plan for ministry expenses
• Church paid HSA contributions
• Fair rental value of the parsonage (federal only)
• Utilities paid by the church (federal only)
• Flexible spending accounts (healthcare and dependent care)
• Group health insurance

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Professional Reimbursement Plans

In many cases, your church will reimburse you for ministry related expenses

• Two types of reimbursement plans:
• Accountable (non-taxable)
• Non-Accountable (taxable)
• What is an Accountable Plan?
• You incur qualified ministry expenses, keep track of them, and submit a monthly report with receipts to get reimbursed
• What is a Non-Accountable Plan?
• You don’t keep track of your ministry expenses because the church has given you an allowance and does not want your receipts.

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Ministry Expenses

• Prior to 2018, ministry expenses were deductible on Schedule A.
• Currently, IRS is allowed Clergy to deduct unreimbursed professional expenses from their Self Employment income on Schedule SE.
• Consequently, this will not reduce your income tax but it will be able to reduce your self-employment tax.

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Examples of Professional Expenses

• Bank charges (ministry account only)
• Clothing (not adaptable to general wear - only ministry clothing like albs, robes, clergy shirts, etc..)
• Conventions
• Ministry or Professional Dues
• Education/Seminars
• Liability/Malpractice Insurance
• Laundry/Cleaning of Ministry Clothing
• Legal or Professional Services
• Office Expenses (postage, stationary, ink, etc.)

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Professional Expenses - Continued

• Professional related gifts ($25 limit per person)
• Religious materials
• Repairs
• Rent on business equipment or office space
• Subscriptions, publications or books
• Telephone
• Ministry long distance calls
• Travel (airplane, lodging, etc)
• Meals (limited to 50% of value)
• Miscellaneous expenses relating to Honoria income

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Auto Expenses

• The Standard Method
• 99.9% of churches use this method - simplifies the process
• Standard mileage rate set by the IRS
• You track ministry related miles

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• The Actual Expense Method
• Track mileage and expenses used for ministry, then are reimbursed for those.
• More complicated!

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• What Miles Can I Claim?
• Any destination you go to for ministry work.
• Commuting from home to church is not deductible - UNLESS you go to the hospital or to visit someone first.

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• Logging Mileage - important to set up a system that works for you. See next slide!

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CHAPTER 5 PAGE 59

Sample Daily Mileage and Expense Log

Found in IRS Publication 463 at https://www.irs.gov/pub/irs-pdf/p463.pdf

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Home Office Expense

• A minister who receives a housing allowance, cannot claim the office in home deduction.
• Office in Home Restrictions (secular only)
• Exclusive Use
• Cannot receive a rental or parsonage allowance.

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Telephone Expense

• You can deduct phone expenses relating to your ministry activities, but you cannot deduct any part of the base monthly charge for the first telephone line to the residence.
• Long distance calls/Additional Charges
• Installing a separate line for work
• Cell Phones
• Not seen as a housing expense any longer.
• Could be deductible up to a certain percentage for work use

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Computer Expense

• Ministers who are employees can only deduct the cost of their computer based on the percentage it is used in the ministry.
• Computer
• Monitors
• Laptops
• iPads
• You may want your church to purchase any necessary computer equipment.

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Clergy Financial Resources Contact Info

• For Luther Seminary, we provide a complimentary review of your first call compensation package.
• Sign up here for your free consultation.

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• This service is not designed for tax consulting. If tax consulting is needed, our Pro Advisor I Tax Support is available for $95.00 for a 30-minute session.
• Clergy Financial Fax: 888-876-5101
• Clergy Financial Telephone: 763-425-8778����

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