Most ministers serving local churches or church agencies are considered employees for federal income tax purposes in relation to their church salary. They report their church salary on Line 1 of Form 1040 and receive a Form W-2 from the church. Their salary is not reported as self-employment income on Schedule C.
Although unreimbursed employee business expenses are not deductible for federal income tax purposes, they are deductible when calculating self-employment income for self-employment tax purposes on Schedule SE.
Deason Rule
Ministers report their net self-employment earnings on Line 2 of Part I. From that income, the minister may deduct:
- Most income tax exclusions, except for housing allowance, parsonage value, meals or lodging furnished for the employer’s convenience, and the foreign earned income exclusion
- Salary reduction contributions (elective deferrals) to a tax-sheltered annuity plan (403(b)) if included in your gross income above
- Pension payments or retirement allowances for your past ministerial services if included in your gross income above
- Unreimbursed employee business expenses
- Business expenses that weren’t deducted on Schedule C due to the allocation of business expenses to the tax-free housing allowance under IRC Section 265(a)(1), also known as the “Deason Rule”
Program Entry
To deduct the mileage expenses from the net income reported on line 2 of Schedule SE, follow this path:
- Itemized Deductions
- Employer Business Expenses
- 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 No
- Would you like to request an exemption from self-employment tax as a minister / clergy member?
- Answer Yes
- Continue
- Select who the form belongs to (if applicable)
- Enter occupation
- Select Continue
- Complete the Vehicle Expenses section
Additional Information