Clergy Tax Law

New Call Basics

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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.com

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Clergy Tax Law Short-Course�4-Part Educational Series

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• New Call Basics for Clergy
• Clergy Housing 101
• Clergy Income and Deductions
• Special Tax Filing Requirements for Clergy

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New Call Basics for Clergy �

• What is Clergy Status?
• Self-Employed or Employee?
• Top questions you should ask about your compensation package
• Building your compensation package
• Compensation Package example

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What is Clergy Status?

• Ordained, Commissioned or Licensed - REQUIRED
• Administers sacraments/ordinances
• Conducts religious worship (in small or large groups)
• Has management responsibility in a local church/religious denomination/employer (control, conduct, or maintenance of a religious organization)
• Considered to be a religious leader by his or her church/denomination/employer

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Are Clergy Employees or Self-employed?

• Clergy have a dual tax status.

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• Considered employees for retirement and health benefits, and receipt of W2.

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• Treated as self-employed for federal, state, and Social Security taxes. (SECA taxes)
• No taxes withheld from paycheck - unless you ask to have them withheld for you
• Must pay estimated tax payments quarterly (April, June, September, January) - unless your church is withholding them
• Federal and Social Security tax payment
• State Taxes payment

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Top questions of a new call

1. Does the church provide a 7.65% social security allowance?
2. Does the church provide for medical insurance?
3. Does the church provide a 100% auto and professional reimbursement plan?
4. Does the church provide a Housing Equity program?
5. Does the church provide a housing or parsonage allowance?
6. What is the fair rental value of the parsonage?
7. Does the church pay the parsonage utilities?
8. How do I calculate and pay my quarterly estimated payments?
9. Does the church have a cafeteria plan or FSA account?

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Social Security and Medical Insurance

• Does the church provide a 7.65% social security allowance?
1. If not, you will pay the full social security tax of 15.3% yourself

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• Does the church provide for medical insurance?
• Health insurance that is provided is tax free
• Health insurance allowance is taxable.

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Reimbursement Plans

• Does the church provide a 100% auto and professional reimbursement plan?
• Non-Taxable Accountable Reimbursement Plans (provide receipts)
• Automobile, Continuing Education, and Professional Expense Reimbursements

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• Taxable Non-accountable Allowance Plans (no receipts needed)
• Automobile, Continuing Education, and Professional Expense Allowance

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Housing

• Does the church provide a Housing Equity program?

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• Designed for people living in a parsonage
• In addition to retirement
• Money set aside for future home purchase

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• Does the church provide a housing or parsonage allowance?
• Additional sum of money based on housing expenses
• Exempt from federal and state taxes
• Want to see this in every compensation package

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Housing (Continued)

• What is the fair rental value of the parsonage?
• Only for people living in a parsonage
• Church must determine annual value of the parsonage
• Non-taxable for federal and state taxes
• Subject to self-employment tax

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• Does the church pay the parsonage utilities?
• Parsonage only
• Non-taxable for federal and state taxes
• Subject to self-employment taxes

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Calculating and Paying Taxes

• How do I calculate and pay my quarterly estimated payments?
• Remember - the church does NOT withhold taxes for you.
• You pay your own taxes quarterly
• If you DON’T pay quarterly, you may be subject to penalties in addition to the taxes
• Does the church have a cafeteria plan or FSA account?
• Churches work with Portico and you will have a variety of options to choose from

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Building your Compensation Package

• Your compensation package is the most important factor in determining your annual tax liability.

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• The best compensation package should contain your salary PLUS the following non-taxable items:
• Housing or parsonage allowance
• Professional accountable reimbursement plan
• Benefits
• The proper combination of your compensation package can often reduce your tax liability with little or no cost to the congregation.

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Compensation Package - Example

• Base Salary: $28,000
• Housing Allowance: $25,000
• Social Security Allowance: (Base salary + Housing Allowance) X 7.65% = $4,055
• Defined Compensation = Base Salary + Housing Allowance + Social Security Allowance = $57,055
• Determines your contribution to pension and health insurance costs
• Professional Reimbursements
• Benefits (Health Insurance, Retirement, and more)

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Benefits

• Pension 10 - 12%
• Medical and Dental Insurance
• Disability Insurance
• Cafeteria Plan (FSA)
• Dependent Care
• Housing Equity Account
• Elective Retirement (403B)

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Definition of Compensation

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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