The first thing to understand is that the income tax code takes the position that any money paid to or for an employee is income unless specifically excluded by the tax code. In addition to the pastor’s base salary, there are some items the church may provide as fringe benefits to the pastor or other employees that the IRS may include as income.
These may include but are not limited to the following:
• Honoraria, special occasion, and love offerings
• Retirement gifts
• Forgiveness of debt
• Below-market interest loans
• Social Security allowance
• Provided auto for personal use
• Provided cell phone for personal use
• Nonaccountable expense reimbursements
• Severance pay
• Spousal travel
• Sick pay
• Moving expenses
• In-kind transfers of property
There are other kinds of income that would generally be considered as income, except for the fact that they have been excluded within the income tax code or regulations.
Some examples of these are:
• Housing / Parsonage / Manse allowance
• Group health insurance premiums
• QSEHRA and HRA health reimbursements plans
• Deferred compensation such as a 403(b) plan
• Employer paid life insurance premiums for coverage up to $50,000 (excess coverage makes a portion of premium taxable income)
• Educational assistance up to $5,250 per year
• Childcare expense up to $5,000 (IRC 129)
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.
For more information or if you need additional assistance, please use the contact information below.
Clergy Financial Resources
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Maple Grove, MN 55369
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