Minister's Income Tax vs. SE Tax
| 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 that 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. |
Is the minister an independent contractor or an employee?
Whether a minister is an employee or an independent contractor is determined under the same common law rules that apply to other taxpayers. The IRS takes the position that few ministers are independent contractors. Ministers employed by a congregation for a salary are generally employees; traveling evangelists, for example, may be independent contractors.
How is Earned Income Credit calculated for a minister?
A minister's earned income is net self-employment income from Schedule SE minus one-half of self-employment tax plus any non-ministerial wages. Earned income includes the housing allowance.
Is the housing allowance subject to income tax?
The housing allowance is generally not subject to income tax but is subject to SE tax.
How do you determine fair rental value for a property.
Determining fair rental value is a question of all the facts and circumstances based on the local market. The IRS has not set guidelines for calculating fair rental value.
Can the minister's surviving spouse exclude the housing allowance?
A minister's surviving spouse cannot exclude the housing allowance from income unless it is received for ministerial services he or she performs or performed.
Are ministers exempt from Self-Employment Tax and Social Security Tax?
Ministers, members of religious orders who have not taken a vow of poverty, Christian Science practitioners, and members of recognized religious sects who are conscientiously opposed to public insurance because of religious considerations or principles can request exemption from SE tax. See Publication 517 for more information.
How does taking a vow of poverty affect things?
Members of religious orders who have taken a vow of poverty are exempt from paying SE tax on earnings for qualified services. In this case, their earnings are considered the income of the religious order.
What about church employees who aren't ministers?
Churches and qualified church-controlled organizations that are opposed for religious reasons to payment of Social Security and Medicare taxes can elect to exclude their employees from FICA coverage. Their employees are required to pay SE tax if wages exceed $108.28. Report wages on Schedule SE.