Any tax differences for bi-vocational pastors

by Dave
(Columbia, MD)

Is a part-time, ordained bi-vocational pastor eligible for the same tax exemptions, (e.g. housing) as a full-time pastor?

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May 31, 2012

benefits
by: Sandra

Start by reading IRS Pub 15 series as different benefits have different requirements and also IRS Pub 517 for housing which states: "Exclusion of Rental Allowance and Fair Rental Value of a Parsonage
Ordained, commissioned, or licensed ministers of the gospel may be able to exclude from income tax the rental allowance or fair rental value of a parsonage that is provided to them as pay for their services. Services include:

Ministerial services, discussed earlier,

Administrative duties and teaching at theological seminaries, and

The ordinary duties of a minister performed as an employee of the United States (other than as a chaplain in the Armed Forces), a state, possession, political subdivision, or the District of Columbia.

This exclusion applies only for income tax purposes. It does not apply for SE tax purposes, as discussed earlier under Amounts included in gross income under Self-Employment Tax: Figuring Net Earnings.

Designation requirement. The church or organization that employs you must officially designate the payment as a housing allowance before the payment is made. A definite amount must be designated. The amount of the housing allowance cannot be determined at a later date.

If you are employed and paid by a local congregation, a resolution by a national church agency of your denomination does not effectively designate a housing allowance for you. The local congregation must officially designate the part of your salary that is to be a housing allowance. However, a resolution of a national church agency can designate your housing allowance if you are directly employed by the national agency. If no part has been officially designated, you must include your total salary in your income.

Rental allowances. If you receive in your salary an amount officially designated as a rental allowance (including an amount to pay utility costs), you can exclude the allowance from your gross income if:
The amount is used to provide or rent a home, and

The amount is not more than reasonable pay for your services.

The amount you exclude cannot be more than the fair rental value of the home, including furnishings, plus the cost of utilities.

Fair rental value of parsonage. You can exclude from gross income the fair rental value of a house or parsonage, including utilities, furnished to you as part of your earnings. However, the exclusion cannot be more than the reasonable pay for your services. If you pay for the utilities, you can exclude any allowance designated for utility costs, up to your actual cost.

May 31, 2012

Bi-vocational pastors and housing?
by: Anonymous in NC

Note: A housing allowance is only available to dual-status ministers who meet the following five separate tests for clergy status:

•Be licensed or ordained
•Administer the sacraments of the church (weddings, funerals, baptisms, and communion, etc...)
•Be considered a religious leader by the church
•Conduct religious worship
•Have management responsibilities in the church

The Pastor is almost always considered a clergy for tax purposes

“Dual Status” is what the IRS considers ministers who pass their 5 point test (above). They are considered an employee of the church for federal income purposes and self-employed for Social Security and Medicare purposes. The church does not withhold or match Social Security and Medicare taxes on a qualified minister.

If you are withholding and matching Social Security and Medicare taxes on your minister because he does not meet all 5 tests, he is not eligible for a housing allowance.

If you (the bi-vocational pastor) meet all five test above and the church board preapproves for you a housing allowance for the year, then you would qualify for the fractional part of the year that you work (ex. 26 weeks of 52 weeks = 50% of the approved housing allowance).

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