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    Clergy Taxes:  Do You Report All Your Income?

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    Here are bits and pieces of this article:

    Whether salary, gifts, bonuses or love offerings, the Internal Revenue Service (IRS) views any money given by a church to a pastor as taxable income, and it has to be reported, according to Linda Connor, director of Samford University’s Center for the Study of Law and the Church in Birmingham.

    “I think misunderstandings about tax issues are engrained in large segments of the religious community… and change is hard,” Connor said. “But, it doesn’t matter. You want to get your affairs in order because, if you don’t, you can hurt your church and the whole ministry.”

    A pastor’s income may even include money paid toward trips including airfare, meals, hotels and entertainment, Connor added.

    “The church can give him as much as they want, but they have to put that amount on his W-2 form,” she said. “If he’s at a place that’s not his own church, they have to give him a 1099 form, if it’s over $600.”

    For more information on tax reporting requirements, Connor suggests pastors and church leaders visit the IRS website, http://www.irs.gov, or read Church and Clergy Tax Guide by Richard Hammar. After all, it is the pastor’s responsibility to file his or her income taxes correctly.

    “There is nothing that prohibits a pastor from receiving an offering,” she said. “It just has to be reported by the recipient as income.”

    You can read the whole article here...

    FOR DISCUSSION:  Are you careful to include ALL income on your tax forms?  How easy is it to ‘forget’ to include some things if you don’t have a good system of recording?

    The Birmingham Times has a pretty good article on clergy compensation and the tax laws. It's an important read, if for no other reason, to serve as a reminder that you must count all your income you make as a pastor on your tax forms. The article cites a good reason: Rev. Gregory Clarke was ordered to serve 21 months in prison and pay more than $35,000 in restitution for money he didn't report on his taxes. These 'love offerings' and 'gifts' were things that Pastor Clarke and his church leaders thought didn't need to be reported. They were wrong.

    Comments

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    1. Dave on Thu, January 03, 2008

      I have a question about the quote by Linda Conner about “gifts” being counted as income. Previously I had worked under the understanding that a church could collect GIFTS from congregants and forward to missionaries the church supports IF it was clearly stated that the GIFT is not a tax-deductible donation. The bottom line is that the IRS wants somebody to pay taxes on that amount. If the donor considers the amount a gift and does not treat it as a tax-deductible donation then the recipient does not have to declare it as income. What is wrong is if the giver claims a tax-deduction for the “donation” AND the recipient treats it as a gift, by neglecting to report it as income.

    2. Blair on Thu, January 03, 2008

      For an ordained minister, housing allowances are not taxable, and thus they are NOT to be reported to the IRS. If it ends up reported, the minister is going to have to pay taxes on it. I ran into this a couple of years ago when a well-meaning but ill-informed church bookkeeper reported all of my housing allowance as taxable income. Straightening that out was a huge ordeal.

    3. Dave on Thu, January 03, 2008

      Blair,


        Our payroll company reports our housing allowances in box 14 of our W-2 as MNHSE, but not in box 1. This way it is reported for Social Security purposes, but not for Federal or State Income taxes. I haven’t been audited, but this has worked for us the last 2 years that we have used this payroll service. I do my own taxes with the aid of Software (TurboTax or TaxCut) and reporting the housing allowance in box 14 has not forced me to pay Fed Taxes on that amount.


      I agree with you that well-intentioned but poorly informed bookkeepers can create very difficult problems for clergy taxes!

    4. Brian on Thu, January 03, 2008

      I count all income from weddings, funerals, etc., but didn’t understand that the yearly gift collected from attendees should be counted.  I will be sure to do that this year.


      Re the housing: the housing allowance is NOT counted for INCOME tax, but IS counted for SELF-EMPLOYMENT.


      So although you get a break on the income tax side, you end up paying the whole 15.3% on both the salary and housing allowance.


      It’s worth going to a tax professional who is familiar with clergy tax law.

    5. Blair on Fri, January 04, 2008

      However, another option that ordained ministers have is the option of opting out of social security for ministerial earnings. I am not sure how wide-spread the practice is, but a couple of ministers that I was close to shared with me about that issue around the same time I was ordained. I made the decision to opt out of social security for ministerial earnings, so in my case, the housing allowance is not subject to the self-employment tax.


      How common is opting out of social security for ministers? My brother is also in ministry, and he hasn’t. (I think he intended to, but the window of opportunity is two years, and he simply forgot.)

    6. Brian on Fri, January 04, 2008

      Yes, you can opt out.  However, the caveat is that you must opt out for the reason that you have a conviction about receiving help from the government in the form of social security and the like.


      You may not opt out simply to avoid the taxes.  In opting out you must affirm (on the appropriate form filed with the IRS) that you are doing so out of religious conviction.  To do otherwise is illegal and unethical.


      And you are right - there is a time window of two years from the time you begin religious employment.


      If someone opts out for the right reasons, then more power to ya!  But you really need to pray and weigh your motives to see if your heart is not being unduly influenced by your tax bill! http://www.mondaymorninginsight.com/images/smileys/smile.gif

    7. SKD on Thu, January 17, 2008

      I also understand that when you opt out of Social Security, you also opt out of Medicare benefits.


      I think this is often overlooked by young ministers looking for a tax break.

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    11. Online Tax Refunds on Fri, December 18, 2009

      I am holding back roughly 15% of my income. I came up with this calculation by an article on a website that had a formula. I will cut and paste the formula. Please tell me if this is correct because I don’t want to owe a tremendous amount of taxes at the end of the year. The state I live in does not have a state tax.
      Online Tax Refunds

    12. The Pimps on Tue, February 16, 2010

      I wonder whether gifts like diamond ring etc to marriage is a taxable income. how it can be.

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