As a member of the clergy, you are considered both employed by the church, and self-employed for tax purposes. You are considered employed as you work for a church and self-employed as the church does not withhold Social Security or Medicare taxes from your income.
What does it mean to prorate expenses?
In the case of clergy members, to prorate your expenses simply means figuring out the amount of expenses you can actually deduct. Our software will do this for you if you check the box and complete the Clergy Worksheet.
Who can select this check-box?
Members of the clergy who earn both taxable and tax-free income will want to select this box. Clergy members typically have tax-free income due to parsonage provided by the church.
What happens if the check-box is selected?
After checking this box, you will be prompted to complete the Clergy Worksheet, unless you have already done so.
How does checking the box effect my return?
Once this box is checked and your Clergy Worksheet is saved, Worksheet 1 will generate within your PDF calculating the percentage of your income which is tax-free, and your net self-employment income.
The tax-free percentage of your income also correlates with the amount of your ministerial expenses you will not be able to deduct. For example, if 45% of your income is tax-free, then 45% of the expenses you report cannot be deducted.