If you're a minister or member of the clergy, your tax situation is a little 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.