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 | |
| Parsonage Provided To A Minister | The 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. |
| Housing Allowance Paid To A Minister | A minister can exclude from income the smallest of: • The amount officially designated by the employer as housing allowance. The amount must be designated as housing allowance before payment is made. • The amount actually used to provide a home. Include amounts paid in the tax year for rent, mortgage payments (principal, interest, insurance, property tax, etc.) furnishings, appliances, repairs, utilities, and down payments. • The fair rental value of the home, including furnishings, utilities, garage, etc. • The minister's reasonable pay. Employers typically report the housing allowance in Box 14 of Form W-2. Housing allowance is not included in taxable wages in Box 1. If the amount the minister can exclude from income is less than the housing allowance, include the excess as 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 a housing allowance. The amount excluded is limited to the actual expenses or the fair rental value of the home. |
Housing provided to a retired minister and housing allowance paid to a retired minister is not subject to SE tax. |