Meeting the unique needs of clergy, church workers, and employees of non-profit organizations since 1998.


FAQs

Q: Is it true that the law has changed, and as a result almost all ministers are considered employees?

A:  No law has changed. The law states clearly that a) a minister is self-employed for social security tax purposes, and b) a minister is not subject to any withholding tax.

Recent tax court cases have made it clear that the employment status of ministers is a matter of his or her individual situation. A minister who is tightly controlled as to the details of his/her work may be considered an employee, while the vast majority of ministers who do not labor under such control are Self-Employed. As of this writing, only one Tax Court case has ruled a senior minister as an employee, while several others have found ministers to be self-employed.

Conclusion: If your denomination or treasurer informs you that "the law has changed" and you now have to file as an employee, don't believe it. Let us look at your particular situation and see what the law and the courts say about it.

Q: Is it true that Employee status doesn't hurt a minister as long as there is an Accountable Reimbursement Plan (ARP) in place?

A:  No - Employee status can hurt a minister in many ways, even if an ARP is in place.

  • Most ministers and churches do not fully implement the ARP. As a result, most ministers still have unreimbursed expenses.
  • Employee status subjects the deduction for these unreimbursed expenses to a 2% limitation.
  • Employee status especially hurts the typical parsonage dweller who does not itemize deductions and therefore cannot deduct *any* of his unreimbursed expenses.
  • Got kids in college? Then employee status hurts you there too. If you are an employee with unreimbursed expenses, your AGI (adjusted gross income), on which your family's student finanical aid package is based, will be higher than if you were self-employed.
  • Employee status may also subject the local church, district headquarters, and national headquarters of a denomination to deep-pocket lawsuits, based on a purported misdeed of the minister.
  • Finally, consider the theological implications of employee status. Are you a shepherd or a hireling? If you are directed to "be instant, in season and out of season", and to "exhort and rebuke", then consider what it means to your ministry if you are called upon to exhort or rebuke your boss.

    These are but a few reasons that self-employment status is often preferable. We encourage you to contact us if you have further questions.

Q: Do Self-employed ministers get audited more often than Employee ministers?

A: We have yet to see a definitive study establishing this. Our own experience indicates that this is not the case.

Q:  I have been told that if you are a Self-Employed minister, you cannot have a TSA (403b), a church paid medical plan, or a pension.  Is that true?

A:  No!  Ministers have had the right to these benefits for decades.

 The 1997 Tax Act specifically says that ministers can have a TSA plan. By implication pension and medical plans are still allowed as well.

However, sometimes medical insurance companies refuse to cover self-employed ministers in church-paid medical plans.  It is important to note that this is not a restriction in tax law, but rather a company preference.


Q: My church treasurer says that my housing allowance can only be up to 50% of my income.  Is that correct?

A:  No such limits exist, either in the Tax Code or in Tax Court cases.  You can designate up to 100% of your salary as housing allowance, as long as you do it in advance.

Q: Can a housing allowance be changed during the year?

Yes, but not retroactively. As most ministers housing allowances are too low, we recommend estimating $5000 above your anticipated housing costs for the year; if you don't use it all, simply report the unused portion as income.

 

Q: Does leasing a car save taxes?

In almost all cases, no. It is also usually more expensive to lease than to buy.  Leasing a car usually only benefits one person – the car salesman!