The IRS considers individual facts and circumstances to decide if a taxpayer is a Minister for Tax Purposes. Court cases and practices of different denominations have influenced IRS decisions. These five questions will help determine if a person is a Minister for Tax Purposes:
- Is the person ordained, licensed or commissioned?
- Does the person administer ordinances (baptism and the Lord’s Supper)?
- Does the person conduct religious worship?
- Does the person have management responsibilities in the church?
- Is the person considered to be a religious leader by the church?
Generally, a Minister for Tax Purposes must be ordained, licensed or commissioned and answer “yes” to a majority of the other four questions.
A church may call someone a “minister,” but the IRS may not treat that person as a Minister for Tax Purposes — that depends on individual facts and circumstances.
Special rules apply to Ministers for Tax Purposes. Ministers and churches should understand those rules, so they can comply with federal tax laws. Ministers for Tax Purposes:
- Are eligible for a church-designated housing allowance
- Are always self-employed for Social Security purposes for their ministerial income.
- Are exempt from federal income tax withholding.
- Use the quarterly estimated tax procedure to pay their taxes, unless they elect voluntary withholding.
- May be eligible to opt out of Social Security, although very few ministers qualify to do this
Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
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