Yes! If you're a minister or member of the clergy, your tax situation is different from most employees. For federal income tax purposes, ministers are generally treated as employees. However, for Social Security and Medicare taxes, they're usually treated as self-employed.
Because of this unique treatment, ministry-related expenses may still affect your self-employment tax calculation, even though most employee business expenses are no longer deductible for federal income tax purposes.
The key rule to remember is simple: clergy expenses follow the income source that generated them.
Where Do Clergy Expenses Go?
Schedule C Ministry Income
Common examples include:
- Professional books and publications
- Continuing education
- Office and ministry supplies
- Travel expenses
- Vehicle expenses related to ministry work
- Other ordinary and necessary business expenses
W-2 Ministry Income
Examples of deductible ministry expenses include:
- Mileage
- Travel expenses
- Parking fees and tolls
- Books and supplies
- Continuing education
- Other ministry-related expenses
How Clergy Expenses Are Treated
For clergy members, expenses entered through Form 2106 generally flow to the worksheets used to calculate self-employment tax rather than creating an itemized deduction on Schedule A.
The program automatically applies the expenses to the appropriate clergy self-employment tax calculations.
How to Enter Clergy Expenses in the Program
Step 1: Enter Your Income
- Form W-2 income
- Schedule C ministry income (if applicable)
Step 2: Complete the Clergy Tax-Free Income Worksheet
Navigate to Federal >> Other Taxes >> Self-Employment Tax, then...
- Select the option indicating you're a member of the clergy.
- Continue until the Clergy Worksheet is generated.
- Complete the Clergy Tax-Free Income Worksheet.
- Enter any applicable:
- Ministerial income
- Housing or parsonage allowance
- Utility expenses
Step 3: Enter Employee Business Expenses (W-2 Clergy Only)
Navigate to Federal >> Deductions >> Itemized Deductions >> Employee Business Expenses
During the interview:
-
Answer No to:"Were you employed as an Armed Forces reservist, a qualified performing artist, a fee-basis state or local government official, or an individual with a disability claiming impairment-related work expenses?"
-
Answer Yes to:"Would you like to request an exemption from self-employment tax as a minister/clergy member?"This step is required to generate the clergy worksheets used by the program.
- Enter your non-vehicle ministry expenses when prompted.
- Continue to the Vehicle Expenses section and enter any eligible mileage or vehicle expenses.
Review Your Return
- The clergy worksheets were generated.
- Ministry expenses were included in the self-employment tax calculations.
- Housing allowance and utility information were entered correctly.
- Income amounts were reported accurately.
Understanding the Housing Allowance
Many ministers receive a housing allowance or live in a church-provided parsonage. While a qualifying housing allowance may be excluded from federal income tax, it generally remains subject to self-employment tax unless you have received an approved exemption from the IRS.
That's why it's important to complete the Clergy Tax-Free Income Worksheet accurately. Entering your housing allowance, parsonage information, and utility expenses correctly helps ensure your self-employment tax is calculated properly.