Ministers are individuals duly ordained, commissioned, or licensed by a religious body or church. The term "church" is generic and doesn't refer to any particular religion. A minister has the authority to conduct religious worship, perform sacerdotal functions, and administer ordinances or sacraments according to the tenets and practices of the church.
The IRS treats ministers as dual-status taxpayers:
- They are employees for income tax purposes.
- They are considered self-employed for Social Security and Medicare tax purposes.
Here is a chart comparing how different items of income are treated for income tax purposes versus self-employment tax purposes.
|Income Tax||SE Tax|
To A Minister
|The fair rental value of the home, including utilities, is excluded from income. The exclusion cannot be more than reasonable pay for the minister's services.||The fair rental value of the home, including the cost of utilities, is included in gross income when calculating SE tax.|
Paid To A Minister
|A minister can exclude from income the smallest of the following:
• The amount officially designated by the employer as housing allowance. Amounts must be designated as housing allowance before payment is made.
• The amount actually used to provide a home (including rent, mortgage payments (principal, interest, insurance, property tax), furnishings, appliances, repairs, utilities, and down payments. Do not include food, entertainment, servants, or home equity loan payments for items unrelated to the home. (Note that mortgage interest and property tax can also be deducted on Schedule A.)
• The fair rental value of the home, including furnishings, utilities, garage, etc.
• The minister's reasonable pay.
Employers typically report housing allowances in Form W-2 box 14, and they are not included in box 1 taxable wages. Excess housing allowance is included in income on Form 1040 Line 7.
|The entire housing allowance, including any allowance for utilities, is included in gross income when calculating SE tax.|
|Retired Minister||A retired minister can exclude from taxable income:
• The value of housing and utilities provided to them.
• The part of a pension officially designated as housing allowance. The amount excluded is limited to actual expenses or fair rental value of the home.
|Housing and housing allowance provided to a retired minister are not subject to SE tax.|