Fringe Benefits

Fringe benefits are great to include in your pastor’s compensation package; however, there are a few factors you should consider before you put together those benefits...

Some examples of fringe benefits include:

Fringe Benefits for Ministers
  • Housing Allowances
  • Expense Reimbursements
  • Health Insurance
  • HSA (Health Savings Accounts)
  • HRA (Health Reimbursement Arraignment)
  • Group Term Life Insurance
  • Cafeteria Plans
  • 401(k) (Retirement Plans)

The housing allowance and expense reimbursement plans are relatively easy to set up; however, benefits such as HSAs, HRAs, cafeteria plans, retirements, etc. should be handled by tax professionals to ensure they are set up properly.

Note: A housing allowance is only available to dual-status ministers.

“Dual Status” is what the IRS considers ministers who pass their 5 point test. 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.

An Accountable Reimbursement Plan is a must for all staff. It is a tax-free benefit that can be very beneficial for your employees....especially your minister which can incur travel expenses in their ministry duties. The ability to reimburse those travel expenses and other ministry-related expenses tax-free it a very important part of a minister's compensation package. See more on a accountable reimbursement policy.

Health insurance can also be a great fringe benefit for your staff. This benefit is usually a tax-free benefit if the church pays for the premiums directly to the insurance carrier.

However, with the initiation of ACA (Affordable Care Act) churches and nonprofits should be aware of the rules and restrictions of the law and ensure their health insurance benefit is a "qualified healthcare plan".

Group "nondiscriminatory" life insurance is another great tax-free benefit. However, keep in mind, only the first $50,000 of coverage is tax-free. Over $50,000 becomes taxable.

Disability insurance can be another great tax-free benefit. Staff should be aware though that if the plan is set up as a tax free benefit...the disability benefits paid to them through that plan are taxable.

HSAs and HRAs are a great fringe benefit as well. AND as of December 13, 2016...we can once again offer HRAs without being in danger of huge fines! See the Ministry CPA post on:  Qualified Small Employer HRAs

Another desired fringe benefit for ministers is a "Social Security Allowance". This is a great benefit because all ministers that have not opted out of Social Security must pay self-employment (Social Security and Medicare) taxes. A Social Security Allowance can offset some or all of that additional cost. However, keep in mind, that all payments are taxable and must be included in the minister's reportable wages.

Want to learn more about setting up and administering a minister's housing allowance?

See my digital book: Minister Compensation and Taxes

This ebook includes an example of a HA resolution and an estimating HA form plus how to set up an Accountable Reimbursement Policy...a must for every church!

You can purchase it as part of the Church Accounting Package or by itself...on this page: Church Accounting Package

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Questions and Comments on Ministers' Fringe Benefits

Do you have a question or comment about minister or pastor fringe benefits? Share it!

Archive of Fringe Benefits Questions (& Answers)

The following comments, tips, and Q/A were provided by FreeChurchAccounting's generous readers:

Reimbursing my health insurance premium from the Health Insurance Exchange 
Hi. I am the pastor of our small, start-up church. My wife and I are the only employees. Our church wants to pay for our health insurance (and dental …

FICA tax for life insurance over $50,000 
We just hired a Pastor who will get a W-2 but is considered self employed. How do I handle the life insurance costs on his paycheck for the FICA tax? …

Are health insurance premiums paid by our minister pre-tax? 
We pay 50% of the health insurance premiums for our minister. I know that this is a non-taxable benefit to him. We withhold the other 50% of the premium …

Cell Phones 
What is the best practice for personal cell phone reimbursement for the Pastor? Should it be added to the Salary or paid as reimbursement? Paid directly …

How to reimburse a pastor for lost wages from his secular job to attend a conference 
The pastor of our tiny church receives his entire compensation as housing allowance. He also works a secular job. He would like to attend one or …

housing allowance in retirement  
Can the housing allowance be continued in retirement through an IRA if the IRA provider is administrator of the denominational 403B?

Pastor's Reduction in Wages 
I have been made aware of some of these laws and my church is considering reducing my wages because of the percentage of wages per income of the church …

Where do you report the Social Security Allowance 
Where would the social security allowance be reported on the W2? Vickey's Reply: Box 1 See this page on this site: https://www.freechurchaccounting.com/example-of-pas …

Do I list fringe benefits minister w-2 form? 
Do I list fringe benefits of health care premiums paid, dental insurance premiums paid and life insurance premiums paid on minister w-2 form? If I do …

Prescription medication allowance 
What do I need to know in order to provide our pastor with an allowance to get reimbursed for prescription medications (when his own coverage makes additional …

Can a religious nonprofit pay for emergency or other health care needs of its fulltime volunteer or paid ministers (dual status ones)? 
I understood that Affordable Health Care Act premiums could not be paid by a nonprofit religious org. to its employye or volunteer ministers -- Is that …

Accountable a Expense no longer valid under the ACA?  
I found that my W-2 form from the church where I serve as lead pastor added my Accountable Expense Plan monies AND the $1000 I allocated for medical expenses …

What to do if church accidentally paid social security and Medicare on clergy 
I meet the qualifications as clergy. My church paid me a housing allowance and I requested that they withhold taxes from my check. I realized when I received …

reimbursement of medicare premiums 
I am the pastor of a very small church of about 35 members. I am the only employee of the church. Can my church reimburse for the medicare premiums for …

Small church provided health insurance on a W2 
A pastor and 2 employees of a small church (6 total employees) have health insurance paid by the church, directly to the insurance company. Does that show …

Tax deductions for retired pastors 
I am a retired pastor. I remain on the church staff as a retired non paid pastor. I am providing spiritual care for the local hospital ans get paid as …

Church paid health insurance premiums exempt from ALL taxes? 
Are church-paid health insurance premiums for pastors exempt from ALL Fed taxes, including SE tax?

Considering Fringe Benefits 
The church that I have served in for the past 8 1/2 years has a yearly accrual system for accumulating vacation days. For example, those who have served …

Fringe Benefits-Income Tax Payments 
Is the church legally allowed to pay for what the pastor owes when filing his yearly income tax returns?

Cafeteria Plan  
Can the church establish a cafeteria plan that designates a certain amount be paid for the health insurance premiums and that amount to be paid to the …

Impact of Health-Care Sharing Ministry payments instead of paying insurance premium? 
Our denomination's group health coverage monthly premium will go up in cost to over $1200.00 a month starting Jan. 1, 2016. This is too much for our …

Paying all deductible medical expenses 
Our church has decided to not only pay pastors medical premium but the $2,500 deductible as needed and all prescription costs (as they are not covered …

Roth IRA contributions? 
Can my church "reimburse" me for my Roth IRA contributions from the pastoral expense account?

Is it taxable to the pastor if the church pays into his IRA for him? 
We have been paying our pastor a salary and a few other fringe benefits and are now concerned that we may have been underreporting his income. The …

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What if we agreed for the church to withhold SS, Fica, and income tax? 
I have been paid, for 9 years, as a church employee, including withholding of income, fica, and ss. I read above that churches cannot do this, but I'm …

Are 403(b) contributions exempt from SE taxes? 
I have a pastor client who insists that the 403(b) contributions reported on her W2 are not subject to SE taxes. The IRS pub. says it's exempt from gross …

Can a pastor receive a medical allowance? 
If a pastor was on a church policy being paid 100% by the church and then married and was added to his wife's policy, can or should the church pay him …

Vacation Expense Reimbursements 
We are paying the expenses for an extended vacation for one of our pastors and his family as a thank you for some extra work he has done over the past …

Health Insurance & Retirement Plan 
Pastor coming to new church has acquired both health insurance and pays into a 403b through Guidestone as an individual. Small church has no insurance …

Fund raiser to pay pastor's vacation 
Can a church hold a fund raiser event to pay for pastor's vacation?

education costs 
If a church helps a pastor get further education by paying for all or some of the education costs, is this taxable income to him?

Benefits for Support Staff 
Does a church have to offer benefits to support staff if they offer them to pastors?

Reimburse church related expenses when pastor not on payroll 
Pastor and executive director not on payroll. Church is small.However we desire to cover their expenses related to conducting business for the church. …

Transfer of Vehicle to Pastor as Gift 
Our Pastor purchased a vehicle under the Church Name and so the church actually owns the vehicle although the Pastor did pay for it himself. Now the church …

Health insurance benefits to a full time or part time staff with no salary.? 
Can church not pay a salary but give health insurance benefits to a full time or part time staff?

benefit package for Pastors 
We are a small church and do not have a group health ins. policy. this is how we would like to present a compensation package for our new pastor. The …

Expenses from home 
I use my home for a lot of church things (I own the home) youth group and I homeless people etc... Can't the church subsidize me for anything?

Church paying for Pastor's Estimated Taxes for 1040ES 
Should I include this in the pastor's income for the year? Or is it simply a reimbursement of an expense?

Pension paid for by the church 
Our pastor is given a pension (% of salary) paid for by the church. This does not reduce his taxable income, where is this reported on the W-2?

Ministers conference expenses 
Pastor would like to attend a conference/ vacation cruise with a well know Christian speaker/author/pastor. Can any of these costs be covered by the Church …

Service Vacation? 
Can a donor give to the director of a non profit religious organization money to be used for a years of service vacation? We are a 501(c)3 organization …

Pastor's wife reimbursed for health care premium 
First Lady was reimbursed for healthcare premium in 2012. The total is over $3900. She is not an employee of the church so I can not W-2 her. Do I 1099-misc? …

W-2 
We pay our pastor a 5000. benefit package to purchase his insurance. Also he receives a 3600. travel allowance. How do I show this on his W-2

Can the church pay for education expenses of the Pastor's children? 
Can the church help to pay for the educational expenses of the Pastor's children and is it taxable for the Pastor?

Continuing health insurance 
Can a church pay for a pastor's individual health insurance policy after they no longer work for the church?

Can a donor give specifically for a pastors medical bills? 
Lets say your pastor has medical expenses of 5300.00 and someone from the congregation wants to pay those. Can the church accept a check for the 5300.00 …

Housing Allowance 
I am a Minister and I passed the IRS 5 point test for dual status (employee & self-employed). But, since i am a stipend pastor my church doesn't give …

How to figure Social Security (SECA) reimbursement 
Our Pastor gets a base salary, housing allowance, non-accountable travel allowance, and 7.65% Social Security allowance. What total do I base the Social …

Pastor's Love Tokens 
Our Pastor has received over $1,000 this year in Love Tokens from members. They were all cash tokens that were given with the regular offerings, recorded …

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Dual Status 
If a minister opts out of the SS via IRS form 4361 does that mean they've opted out of the medicare as well. Also do they still retain dual status if they've …

Minister Travel expense vs benefit 
A church has a minister who travels throughout the USA for meetings and to conduct sermons. The church pays for his airline flights. When he lands he is …

"Love Offerings" for ministers - income with deductions? 
We are having a love offering (which will be segregated from our regular offerings) and designated to a minister. This offering will be for a minister …

Can the ministry pay for clothing that is worn to preach? 
Can the ministry pay for a ministers clothing that is worn to preach?

HSA for Pastors 
We had our annual membership meeting to discuss the budget. Our church was in good shape last year, but this year the board said that we needed to make …

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

Fringe Benefits - taxable or not taxable 
Our church structure includes a District that reports to a Jurisdiction that also reports to the National Church. When my pastor attends meetings …

contributions to a retirement plan 
Are salary reducing employee contributions to a retirement account by clergy subject to any taxes or are they completely pre-taxed?

Dependent daycare 
Can my husband who is a minister pretax dependent daycare when he sets up his salary package for the year?

Pastor Designates Allotments to Fringe Benefits 
Our pastor designates a certain amount of his salary for housing, life insurance and a medical reimbursement plan. He submits receipts and we reimburse …

Benefit 
Every year my pastor gets $7,000.00 as a gift from the church. Is this money reportable to IRS by both my church and the pastor?

Church Helps with Car Payment and Expenses  
My Husband and I are pastors of a small church about 20 members. They do not pay a salary but give him a small amount to help with his car payment and …

auto allowance 
Our pastor does not get a salary but we give him an automobile allowance. Do we have to show that or report it to IRS? vickey’s reply If …

SS & MC Taxes 
If a minister is considered "Dual-Status" according to the federal tax guidelines is it permissible for the church to include in his salary the amount …

pastor life insurance 
what is the greatest amount of life insurance a church can take out on a pastor. Know the answer? Face the same situation? Please post your answer

Voluntary salary reduction to a non-profit organization 
Our pastor has requested that his salary be reduced by $250 per month as his "contribution or tithe" back to the church in order to reduce his taxable …

Is a Pastor's book allowance taxable? 
Hello. I am a pastor of a church in North Carolina. In our budget is a line item for Pastor's Resource (I buy books, journals, etc.) with this. It's …

Insurance for the pastor and wife 
Is the church reimbursement of premiums for Individual insurance for the pastor and his wife legal? Know the answer? Face the same situation? Please

Is it a bad decision for the pastor to take a housing allowance due to the SE tax? 
We chose the housing allowance because we thought it avoided payroll taxed for our church. It appears that it will now double our finacial responsibilities …

How to file for self employed Minister with housing allowance 
If the 1099 form does not have a designated spot for housing allowance how is it filed? Example; if I am a part time paid pastor who gets 2000 a month …

Retirement 
My husband is the pastor of a small congregation. Can they put money away for his retirement without him having to pay self employment tax on it- What …

Is an automobile allowance taxable? 
Our minister receives a fixed amount annually for use of his personal autmobile. This amount is not based on actual mileage, and is not supported with …

How to handle additional medical expenses 
Our minister is being paid his salary and then the church also issues him a check monthly for any and all medical bills not covered by his insurance, co-pays, …

Is housing allowance paid to the pastor included in the 1099 he receives. He does not get a salary for a w-2. 
We are currently giving our pastor what we call love gifts out of the church general fund. He does not get paid a salary. In addition to the love gifts …

Housing Allowance - Severance Pay 
If a church lets a pastor go and agrees to pay him 6 months severance, how is it paid out? Does the "Housing Allowance" still apply or does the entire …

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Serving Religious Non-profit ... Am I Eligible? 
I have just begun serving a religious non-profit that is engaged in active ministry, but is not a church. I believe I still fulfill the 5 point test in …

Issued Minister Form 1099-Misc. 
For this 2010 year, I will issue my Pastor Form 1099-Misc. In box 7 "Nonemployee Compensation" I believe I just need to put his base salary (For Income …

not ordained minister but receiving housing allowance, report for taxes? 
My Husband is not ordained but he is the youth pastor at our church and administrator to our very small Christian school. He receives a housing allowance …

HSA church deposits taxable? 
If a church deposits directly into a HSA to assist the pastor with the high deductible, are those monies reported and taxable (we're W-2 reporting)? …

Housing allowance for youth/music minister 
Do you have to report Housing allowance for a youth/music minister that you do a misc 1099 on? I have just recently taken over this job and the prior …

Housing Allowance 
I am a Reverend in my church, but not the Pastor. I meet four of the five separate tests (I only minister occasionally) I do not have any management …

Housing Allowance or Wages? 
My husband is an ordained pastor of two churches. He does qualify as a minister under the IRS rules. He is the only person who gets paid at both …

Medical Allowance for Pastor 
Question regarding a medical allowance for our pastor: I am the bookkeeper at our Church and am trying to finish up the W-2's for all employees. …

Clergy's Housing Allowance on 1099-misc 
I have a SELF-EMPLOYED minister for whom I am completing a 1099-misc. Where do I enter the amount for his housing allowance? And where do I enter …

Health Insurance Reimbursement 
I am a pastor and pay my own taxes thru the quarterly ES form. My wife works outside the home and we get health insurance thru her job. The church reimburses …

Medical Savings Account for Pastor 
If a savings or checking account is set up by the church to help the pastor with medical expenses, are those monies considered as taxable income to the …

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The comments above are for general information purposes only and do not constitute legal or other professional advice on any subject matter. See full disclaimer.



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