The IRS is specific about who can be considered clergy for tax purposes. This is important! Only clergy receive the “housing allowance” tax benefit, clergy-specific 403(b) distributions, and a clergy Accountable Reimbursement Plan.
You may be ordained and employed in something you consider a ministry, but the IRS may not agree. You may be a missionary, evangelist, chaplain, administrator, itinerant preacher, educator, or ordained wedding celebrant and NOT meet the IRS guidelines.
Here’s how to tell if you’re clergy for tax purposes. (ProTip: The IRS can’t figure it out by your vestments.)
- Are you Ordained, Licensed, or Commissioned?
- Do you administer ordinances or sacraments (baptism, Lord’s Supper, etc.)
- Do you conduct worship?
- Do you have management or administrative responsibilities in the church?
- Does your church consider you a religious leader?
To qualify as clergy for tax purposes, you MUST answer “yes” to question 1 AND to a majority of questions 2-5.
If you ARE clergy, congratulations!
If you ARE clergy, you will need to understand:
- Housing allowance, calculation, and tax benefits
- 403(b) tax-free distributions as housing allowance
- Exemption from Income Tax withholding
- Calculating and paying Quarterly Estimated Taxes (or arrange to withhold on W-4)
- Paying both parts of SECA (not FICA)
- Setting up a 100% Accountable Reimbursement Plan
Clergy Financial Coaching can help you understand the unique financial and tax needs of pastors and walk alongside you in ministry to find financial wholeness.
Schedule a FREE 30-minute coaching session to get some clarity on your financial future!