Self-Employment Tax Deductions for Clergy

Tax Tips for Ministers and Clergy Members: Understanding How You’re Affected by Self-Employment Tax

If you are a member of the clergy, you should receive a Form W-2, Wage and Tax Statement, from your employer reporting your salary and any housing allowance. Honoraria and fees that you receive from individuals for marriages, baptisms, funerals, masses, etc., are usually considered income from self-employment and are reportable on Schedule C, Profit or Loss from Business.

If you give your outside earnings to your religious organization, you will have to include those earnings in your income, but you would be entitled to a charitable contribution deduction. If your net earnings from performing these services are $400 or more, you must pay self-employment tax on the income you report on Schedule C. In addition, you may need to make estimated payments to cover the amount of self-employment tax and income tax associated with the net profit on Schedule C.

If you are paid a housing allowance, sometimes called a parsonage allowance or a utility allowance, you may be able to exclude all or part of these amounts from your taxable income if you spent the allowance for the intended purpose. Housing and utility allowances are, however, subject to self-employment taxes (Social Security and Medicare).

How is Your Tax Return Different from Everyone Else’s?

Members of the clergy have unique tax situations.

They have no social security taxes withheld so they must file a Schedule SE to pay their own Medicare and Social Security taxes when they file their tax return
They are permitted to determine their total utilities and rent or interest, real estate taxes, and homeowners insurance. If the total expenses are equal to or greater than their total living expenses, their housing/parsonage/utility allowance is tax-exempt
They must pay SE taxes on their housing/parsonage and utility allowance
They pay no income taxes on their qualified housing/parsonage and utility allowance
Their wages are very low
They often have a Schedule C for the honoraria, such as weddings and funerals, they perform and a W-2 from the church the job of being a minster.

Key Tax Deductions

If you are a self-employed minister or clergy member, or you receive self-employment income for your services, you may be able to reduce your taxes by deducting your associated expenses on your Schedule C. You should keep receipts to substantiate these expenses.

The following are examples of some of the items you may be able to deduct:

Subscriptions to publications and journals related to your work
Dues for professional associations
Insurance premiums for protection against liability or wrongful acts
The cost and upkeep of vestments, including laundering and dry cleaning
State or local government license fees, provided these fees are not paid for initial certification
Vehicle expenses when driving on ministerial business; performing weddings and funerals (You must keep a mileage log to substantiate your vehicle expenses.)
Travel expenses for traveling away from home if you are required to be away for longer than an ordinary days work
Meals and entertainment expenses that are directly associated with your work or travel for work
The cost of attending seminars and meetings directly related to your work as a clergy member
The cost of office supplies and equipment required to do your work, such as pens, paper, and computers
The cost of brochures and pamphlets
Long-distance telephone charges
Cell phone costs, if the cell phone is required for conducting church business
Health insurance premiums up to the amount of your net self-employment income, if neither you nor your spouse is eligible for employer-sponsored coverage

You also may be able to deduct work-related, unreimbursed education courses or seminars if they meet certain requirements. Qualified education includes refresher courses and courses on current developments. However, education that qualifies you for a new trade or business or that helps you to meet the minimum education requirements of your present trade or business is not deductible. For example, a minister cannot deduct expenses for the study of marine biology on Schedule C, although other general education credits may apply.