|Ministers & Other Members of the Clergy|
A duly ordained, commissioned, or licensed minister of a church or a member of a religious order is engaged in carrying on a trade or business with respect to any service performed in the exercise of his/her ministry.
Income received by a minister for services rendered in his capacity as a minister are subject to the self-employment tax unless the taxpayer requests and receives an exemption from the IRS. A minister who is an employee of a church must treat wages for performance of services as a minister as wages for income tax purposes, but as self-employment income for self-employment tax purposes.
Generally, a minister's gross income does not include the fair rental value of a home (parsonage) provided, or a housing allowance paid, as part of the minister's compensation for services performed that are ordinarily the duties of a minister.
Parsonage Allowance: A minister who is furnished a parsonage may exclude from income the fair rental value of the parsonage, including utilities. However, the amount excluded cannot be more than the reasonable pay for the minister's services.
Housing Allowance: A minister who receives a housing allowance may exclude the allowance from gross income to the extent that it is used to pay expenses in providing a home. Generally, those expenses include rent, mortgage payments, utilities, repairs, and other expenses directly relating to providing a home.
If a minister owns a home, the amount excluded from the minister's gross income as a housing allowance is limited to the least of the following:
(1) the amount actually used to provide a home;
(2) the amount officially designated as a housing allowance; or
(3) the fair rental value of the home.
The minister's church or other qualified organization must designate the housing allowance pursuant to official action in advance of payment. If none of the minister's salary has been officially designated as a housing allowance, the full salary must be included in gross income.