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.

Exemption from Self-Employment Tax for Conscientious Objectors
Requirements for exemption: A minister may be eligible for an exemption from the self-employment tax based on conscientious objections. Code §1402(e).

To qualify for this exemption, a minister must file a statement with the IRS certifying that he is conscientiously opposed to, or because of religious principle is opposed to, the acceptance of any insurance that:

(a) makes payments in the event of death, disability, old age, or retirement; or
(b) makes payments toward the cost of, or provides services for, medical care (including the benefits of any insurance system established by the Social Security Act).

This exemption only applies to income from the taxpayer's performance of ministerial services. Any payments received that are not for the exercise of the ministerial services are subject to self-employment tax.

A taxpayer who receives income from performing ministerial services and also from another trade or business will be deemed to have no income from performing the ministerial services if deductions that are attributable to those services exceed the income from them. Reg. §1.1402(e)-3A(c).

Ministerial services: For purposes of the exemption, ministerial services include the ministration of sacerdotal functions and the conduct of religious worship and the control, conduct, and maintenance of religious organizations (including the religious boards, societies, and other integral agencies of such organizations) under the authority of a religious body constituting a church or church denomination. Reg. §1.1402(c)-5(b)(2).
Parsonage or Housing Allowances
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.