The Earned Income Tax Credit (EITC) is a refundable tax credit for people who work and earn low to moderate income.
It can reduce the tax you owe and may result in a refund, even if no tax is due.
Because clergy have special income rules—especially for housing allowances—the way earned income is calculated for EITC can differ from other taxpayers.
Key EITC Rules for Clergy Members
1. Housing Allowance and EITC
- A minister’s housing allowance or the value of a parsonage is generally excluded from gross income for federal income tax.
- However, for EITC purposes, the housing allowance must be included in earned income unless the minister has officially opted out of Social Security and Medicare.
Example:
Pastor Jane receives:
- $30,000 in salary
- $10,000 in housing allowance
- If she participates in Social Security → EITC earned income = $40,000
- If she filed Form 4361 or Form 4029 and was approved → EITC earned income = $30,000
2. Opting Out of Social Security
- Ministers may file Form 4361 or Form 4029 to request exemption from Social Security and Medicare taxes.
- If the exemption is approved:
- The housing allowance is excluded from earned income for EITC.
- Earned income may be lower, which can sometimes increase EITC eligibility.
Important: Filing the form alone is not enough — the IRS must approve the exemption.
3. Dual Tax Status
Ministers are treated as:
- Employees for federal income tax
- Self‑employed for Social Security and Medicare taxes
This dual status affects:
- How income is reported
- Whether housing allowance counts toward EITC
4. Types of Income to Include for EITC
Include as earned income:
- Salary or wages for ministerial services
- Fees for weddings, funerals, baptisms, and similar services
- Housing allowance (unless exempt from Social Security)
Do NOT include:
- Personal gifts or donations not connected to services
- Housing allowance if exempt from Social Security and Medicare taxes