Tax tips for pastors: Your 2024 essential guide

As a church leader, you seek to know the needs of your congregation and community. But with this calling, there’s another complex topic that also requires a deep level of understanding: taxes. Here are some of core facts and nuances to keep in mind.

In this article, we’ll cover:

• How are pastors taxed?
• How are churches taxed?
• Are pastors exempt from Social Security and Medicare?
• Which tax forms do clergy use?
• What is the minister’s housing allowance, and how is it taxed?

Under federal law, most ministers have dual tax status. That means you’re taxed as a W-2 employee of the church, and you’re taxed as a self-employed person for Social Security and Medicare.

For tax purposes, you’re considered a minister if:

• You’re ordained, commissioned or licensed.
• You administer sacraments or ordinances.
• You conduct religious worship.
• You have management responsibilities within a local church or religious denomination.
• Your church or denomination considers you a religious leader.

There are some exceptions to this. For example, traveling evangelists and some interim pastors are considered independent contractors. Instead of a W-2, they receive a Form 1099-NEC from different churches where they provide services. And they file their income as self-employed.

Pastors are required to make quarterly estimated tax payments. These dates are especially important to keep track of to avoid potential IRS penalties.

For the most part, churches are tax-exempt and viewed as employers. That’s why they don’t withhold income tax from a pastor’s wages (unless you’ve requested differently). However, they are responsible for payroll taxes for other church employees. And they should issue pastors a W-2.

Unlike other types of corporate entities, the IRS does not require churches to pay corporate taxes. And as a result, they don’t need to file an annual tax return to determine how much tax they owe.

Other taxes, like sales tax and property tax, may apply if a church doesn’t obtain exemptions from their state or other municipalities, and if non-exempt items are sold by the church or if they own personal, non-real estate property. For example, if a church owns multiple facilities and begins renting one out to individuals or organizations as a way of generating income when it’s not in use, local tax laws may require the church to pay property taxes on that building—depending on the types of activities being hosted there.

With any kind of employment comes an obligation to pay into Social Security and Medicare. The government collects these taxes through one of two ways: the Federal Insurance Contributions Act (FICA) or the Self-Employment Contributions Act (SECA). In the FICA system, the employer and the employee each pay half the taxes due. However, pastors are taxed under the SECA system due to the self-employed side of their dual tax status. You pay the entire tax (15.3% of your salary and any provided housing allowance), since under the self-employed classification, you are both the employer and the employee.

Sometimes, a church may consider paying their pastor a Social Security allowance to help relieve some of their tax burden in lieu of being able to withhold the tax themselves.

You can request an exemption from self-employment tax by filing Form 4361, Application for Exemption From Self-Employment Tax for Use By Ministers, Members of Religious Orders and Christian Science Practitioners. By doing this, you certify that you are either:

• An ordained, commissioned or licensed minister of a church.
• A member of a religious order who has not taken a vow of poverty.
• A Christian Science practitioner.

You must submit the form by the second tax year in which you’ve made $400 or more as a self-employed minister. These two tax years do not have to be consecutive.

You must submit the form by the second tax year in which you’ve made $400 or more as a self-employed minister. These two tax years do not have to be consecutive.

While a Form 4361 exemption may sound desirable on the surface, it’s not a decision to take lightly. In applying for this, you must attest that your convictions oppose the acceptance of public insurance (like Social Security or Medicare). Opting out is an irrevocable election. And while private insurance, retirement savings vehicles and investments are often important tools in supplementing your retirement income, they can be especially costly if they also need to replace your Social Security benefits altogether. Before filing this exemption, it’s a good idea to consult with a tax professional and financial advisor to decide if the financial tradeoffs make sense for you.

As a pastor, you’ll need to prepare a variety of forms and schedules. Here’s a look at the most common ones.

Form 1040 is the core tax document to report your income and summarize other important tax information. On it, you’ll state your filing status, name and address, dependents and earnings. You’ll use additional schedules and forms to provide supplemental details.

You can use a Schedule A to itemize deductions like medical and dental expenses, as well as taxes, interest, qualified disasters (i.e., casualty or theft of your personal property; hurricanes or wildfires), and charitable donations.

Your Schedule C is meant for reporting income and expenses related to activities beyond your ministerial duties. That could include speaking events at other churches, or fees you’ve received directly from church members for services like weddings, funerals and baptisms. You also can use this form to deduct expenses like travel, office needs, books and computers.

Schedule SE is intended for reporting Social Security taxes owed on your self-employment income, unless you’ve received a Form 4361 exemption.

Part of your compensation may include a housing allowance, or what some people call a parsonage, or rental allowance.

It can be used for:

• Rent
• Down payment on a home
• Mortgage payments
• Real estate taxes
• Home insurance
• Utilities (i.e., electricity, gas, water, trash removal)
• Furniture and appliances
• Repairs, maintenance or improvements
• Homeowners association fees
• Related expenses

You can exclude this stipend from your gross taxable income if the church officially has indicated the specific amount as a housing allowance before paying it, and if it does not exceed the fair rental value of the home (furnished, plus utilities). However, you do need to include the housing allowance as income for self-employment taxes.

Say your church has designated a $50,000 annual salary and $20,000 housing allowance based on the fair rental value and utilities of the home you’re in. You’d report $50,000 of gross income on Form 1040, line 11, but $70,000 on your Schedule SE.

If the housing allowance you receive surpasses actual expenses (i.e., the fair rental value of your home was $2,000 less than estimated or your utility bills were $500 under what was planned), you must report the excess cash as taxable income on your 1040.

After you retire, you’re able to declare a housing allowance on distributions from a church-sponsored 403(b) retirement account. That means you can exclude those distributions from your taxable gross income. Just bear in mind that, if you die before your spouse, your 403(b) becomes fully taxable and could move them into a higher tax bracket in addition to having to file as a single person.

Make no mistake: Minister taxation is complicated. If you’re feeling a bit overwhelmed—you’re not alone. Understanding your tax implications, combined with long-term financial planning and budgeting, can help you make decisions with clarity and confidence. Consider partnering with a tax professional and financial advisor to help you balance your ministry and financial responsibilities.