Clergy Tax Resources

Unraveling the complexity of clergy taxes.

Clergy tax issues can be complicated.  Yahr Income Tax is here to serve those who serve the Lord by providing our knowledge and resources to help answer the most common tax-related issues affecting ministers and churches.

Frequently Asked Questions

  1. Am I an employee or self-employed?  According to the legal case of Weber vs. The Commissioner in 1995, ministers are employees for everything except social security taxes.  This means that you are considered dual-status and should receive a W-2 form.  Please note the W-2 should not have anything entered in Boxes 3 - 6.  If you find yourself with an incorrect W-2 or find your church is withholding for social security and medicare taxes, please act immediately and contact us or your treasurer.
  2. Am I required to pay in estimated taxes or can my church withhold it for me?    If your church is able, you can voluntarily elect to have additionally federal and state income taxes withheld so you do not need to send in quarterly estimated payments.  Remember, the church CANNOT send in social security and medicare money.  We would highly recommend talking to us to figure out how much you should elect to have withheld as the W-4 Form will not calculate the correct payroll withholdings.
  3. Is it wise to opt out of social security?  This question comes up quite a bit.  It is important to understand what social security covers - medicare, life insurance, disabiliity insurance, and retirement.  If you chose to opt out within the first 2 years of being ordained it will be your responsibility to save your money and invest in these items.  Medicare will still be an option but a much more expensive one.  If you are 2nd career or bi-vocational you may already have your 40 quarters in to be eligible for medicare so that decision may be easier to make.  Once you opt out, the exemption is generally irrevocabe.  The IRS has only had 2 "open seasons" in the history of the tax law to revoke the original 4361 election.
  4. Can I deduct my unreimbursed clergy expenses?  The answer is yes.  However, with the Tax Cuts & Jobs Act the way the deduction works on your tax return is not as beneficial as it has been in the past.  Previously, you would take the unreimbursed employee expenses (Form 2106) and that would apply to Schedule A for itemized deductions. You would receive both a benefit in lowering your SE Tax and your Federal and State Income taxes.  Under the new law, unreimbursed employee expenses are no longer eligibe for itemized deductions.  This means that we can still complete Form 2106 and lower your SE Tax but we cannot lower your Federal and State income taxes.  It is highly recommended that your church put an Accountable Plan into place where they reimburse you for expenses you paid out of pocket and it is not included in your taxabe income.
  5. Should I have a car allowance or business mileage reimbursement?  We highly recommend the business mileage reimbursement under an Accountable Plan to insure that you are not paying more in taxes.  Car allowances are considered taxable income and with the TCJA taking away the unreimbursed employee expenses it is just not beneficial from a tax prospective.
  6. When is the best time to designate a housing allowance?  The best time is in the Fall at budget time.  All designations must be included in church meetings.  We recommend you keep a copy of this in your records.  Additionally, designating this early will give your treasurer time to adjust for payroll if necessary.  You can designate housing from your salary if you own or rent a home, or if you live in a parsonage.  The housing designation is designed for you to use if you have out-of-pocket expenses in relation to the house you live in.  
  7. Can I change my housing allowance mid-year?  Yes!  The housing allowance designation can be changed or amended at any time during the year BUT, never retro-actively.  This means that the new designation applies only to the money remaining to be paid for that year.  If you anticipate extra costs in the months ahead for various reasons adjust your housing allowance designation before you incur the expense.  We can't recommend enough to over designate your housing for the year. If you don't use the entire amount, it will flow back ot taxable income on your Form 1040.  This is completely allowable per the IRS.

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At Yahr Income Tax LLC, we've been serving clients all around the world virtually for years. If you need help with tax or bookkeeping, we would love to hear from you.

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Yahr Income Tax LLC

6751 W. 190th Street
Jordan, MN 55352
T: 952-223-7276
F: 800-557-9864
E: info@yahrincometaxllc.com

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