Ministers are individuals duly ordained, commissioned or licensed by a church. The term "church" is generic and does not refer to any particular religion.
Most ministers are treated as dual-status taxpayers:
- They are employees for income tax purposes;
- They are self-employed for Social Security and Medicare tax purposes.
If the minister is an employee of a church or religious organization, their compensation is typically reported to them on Form W-2. The minister may also receive self-employment income performing services such as weddings, baptisms, and funerals, and this income may or may not be reported to them on Form 1099-NEC or 1099-MISC.
Note that while ministers are not subject to their employer withholding federal income tax, they may instruct their employer to withhold tax anyway to cover any income and SE taxes.
Return preparation overview
When completing the tax return for a member of the clergy, first enter all Form(s) W-2 and complete Schedule C if there is any separate self-employment income. After that, you'll complete the Clergy Tax-Free Income Worksheet under the Schedule SE menu to determine the taxable amount of the minister's income. (This is Worksheet 1 in IRS Publication 517.) This worksheet, along with Worksheets 2 and 3 in Publication 517 will inform Schedule SE.
The only exception to paying SE tax is when the minister or clergy member has filed for an exemption using Form 4361 or Form 4029, either of which must be approved by the IRS.
If the minister received a housing allowance and utilities allowance, these are generally reported in Form W-2 Box 14. The housing allowance on Form W-2 is considered the fair rental value of the parsonage and is entered on the clergy worksheet. (Housing and utility allowances don't flow to the clergy worksheet from the W-2 - you must enter them in the worksheet.)
Complete Schedule C if needed
If the minister received self-employment income officiating at events such as weddings, baptisms, funerals, etc., that income should be reported on Schedule C along with any out-of-pocket expenses related to the income.
To enter a minister's self-employment income on Schedule C in TaxSlayer Pro, from the Main Menu of the tax return (Form 1040):
- Select Income
- Select Business Income/Loss - Click New. For a MFJ return, indicate if the Schedule C is for the taxpayer or the spouse.
- Enter 813000 for the Principal Business Code, then click Ok.
- If the ministerial work is done under a separate name, has an employer ID number, or has a separate address, enter that information. Otherwise these fields can be left blank. Click Ok when done, then click Exit at the next menu.
- In the Schedule C Questions Menu, select Clergy Tax-Free Income Worksheet.
- Did the Church Provide You with a Parsonage? - Answer Yes or No as appropriate to move to the Clergy Tax-Free Income Worksheet. (Note that this is a shortcut to the worksheet under the Schedule SE menu.)
Complete the Clergy Tax-Free Income Worksheet
The Clergy Tax-Free Income Worksheet is under the Schedule SE menu. (This is Worksheet 1 in Publication 517, "Figuring the Percentage of Tax-Free Income".) Its purpose is to help determine the minister's taxable ministerial income, their allowable deductions, and their net self-employment income.
You can navigate to this worksheet via Schedule C (if completed as above), or from the Main Menu of the tax return select:
- Other Taxes
- Self-Employment Tax (Sch SE) - If filing MFJ, indicate who the Schedule SE belongs to.
- Is This Schedule SE being Filed for a Minister/Clergy - Answer YES if not already indicated.
- NonFarm Regular (including Ministers Income)
- Clergy Tax-Free Income Worksheet - If this is the first time you've started the worksheet you'll be asked Did the Church Provide You with a Parsonage? Answer YES or NO as appropriate. The correct answer is important as the worksheet is completed differently depending on the answer.
In the Percentage of Tax-Free Income Worksheet Menu, complete the following menu lines as needed.
-
W-2 Salary as a Minister with No SS Tax Withheld
W-2 Salary as a Minister with SS Tax Withheld - Enter the W-2 Box 1 minister income in one of the two fields depending on whether or not Social Security tax was withheld. - Schedule C Gross Income from Weddings, Baptisms, etc. - Enter the gross income being reported on the ministerial Schedule C.
- Did the Church Provide You with a Parsonage? - Answer Yes or No as appropriate.
The remaining menu lines will vary depending on whether or not you answered Yes or No to the church providing a parsonage.
If the church did not provide a parsonage, enter the following information:
- Parsonage or Rental Allowance - Enter here any amount shown in Form W-2 Box 14 designated as a housing allowance.
- Utility Allowance, if Separate - Enter here any amount shown in Form W-2 Box 14 designated as a utility allowance.
- Actual Expenses for Parsonage - Enter the total actually spent on the parsonage. The list of expenses includes mortgage payments (both principal and interest), real estate taxes and special assessments, mortgage and/or title acquisition fees, home improvements and repairs, furniture moving costs, certain essential home furnishings, home insurance, landscaping and yard maintenance, rental payments for storage, etc.
- Actual Expenses for Utilities - Enter here the actual utility expenses for the year. Utilities generally includes electricity, natural gas, oil, water, basic landline telephone, trash pickup service, basic cable television, and internet service.
- Fair Rental of home, plus Cost of Utilities - This amount may be equal to the amount shown on Form W-2 Box 14, otherwise the minister can obtain an appraisal from a local real estate professional.
If the church provided a parsonage, enter the following information:
- Fair Rental of Parsonage Provided by Church - This amount may be shown on Form W-2 Box 14, but if not the minister can obtain an appraisal from a local real estate professional.
- Utility Allowance, if Any - Enter here any amount shown in Form W-2 Box 14 designated as a utility allowance, if any.
- Actual Expenses for Utilities - Enter here the actual utility expenses for the year. Utilities generally includes electricity, natural gas, oil, water, the rate for basic landline telephone, trash pickup service, the rate for basic cable television, and internet service.
When finished with these entries, click Exit.
Finish Schedule C
If you came to the clergy worksheet via Schedule C you'll be returned to the Schedule C Questions Menu. Click Exit to proceed to the Schedule C Edit Menu where you can enter the taxpayer's ministerial self-employment income as well as the expenses incurred related to this income. The expenses will be prorated based on the percentage of tax-free income as calculated on the Clergy Tax-Free Income Worksheet.
Note: This is a guide for entering minister and clergy information into the TaxSlayer Pro program. It is not intended as tax advice.
Additional Information:
Minister's Tax Return - Frequently Asked Questions (FAQ)
IRS: Publication 15-A - Employer's Supplemental Tax Guide
IRS: Tax Topic 417 - Earnings for Clergy