Because of the special nature of a minister's duties and the many forms of compensation clergy receive, filing taxes can be a confusing affair for religious figures. This is especially true when determining tax deductions. Clergy qualify for the same deductions as everyday people, but also enjoy a number of special tax benefits.
Parsonage and Housing Allowances
Ministers may exclude the fair rental value of church-provided housing from their income. They may also exclude housing allowances so long as the money is used for home-related expenses, such as utilities and mortgage interest. The amount excluded for parsonage or housing allowances should not exceed the minister's pay. This exclusion applies to income tax only. Parsonage and housing allowances are subject to self-employment tax.
Ministers who are considered self-employed must pay a self-employment tax on earnings of $400 or greater. This tax covers employer contributions to Medicare and Social Security. You may deduct half your self-employment tax as an expense on your income tax form, however.
It is possible to receive an exemption from self-employment tax if you are morally opposed to public insurance. Fill out Form 4361 to request an exemption from the IRS.
Deduct any expenses you pay in the course of fulfilling your duties. Examples include work-related travel, seminar fees, subscriptions to religious publications and the cost of vestments.
Certain education expenses are also deductible, so long as they do not provide training for a new occupation. If you earn less than $65,000, or $135,000 filing jointly, you may deduct up to $2,500 in student loan interest.
Health Insurance and Medical Expenses
Health and dental insurance for you and your family are deductible when calculating income tax. You may also subtract medical expenses in excess of 7.5 percent of your gross income.
The IRS allows tax filers to deduct taxes paid on real estate as well as state and local taxes. Ministers may also receive deductions for charitable donations made to a qualified nonprofit. Other common deductions a minister might qualify for include IRA and 403(b) contributions, payments into a health savings account (HSA) and child care expenses up to a certain amount.
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