I’M A NEW (BROKE) PASTOR, ARE THERE ANY TAX BENEFITS?
When I was on staff at a church, I met with the administration and pastoral teams to see if I could take advantage of some of the same tax benefits my colleagues received. Excitement quickly dissipated when I learned I couldn’t simply fill out a form and dance my way to "free housing."
I wasn't out to find some way to work the system. I was newly married, in seminary, and worked three jobs during my first three years in ministry. I simply wanted to see if the benefits of housing allowance could make things a little easier.
Did you experience something similar when you started in ministry?
The roles of ordained ministers are integral in the expansion of the church. Pastors maintain an important role in the advancement of the gospel in our nation. One longstanding benefit made available to those in the United States are housing allowance and tax breaks to ordained ministers.
You may be asking, “Where do I even start?”
Who decides on ministerial election and tax breaks for ministers?
Is it the IRS?
Is it church administration?
Can the board of elders vote on ordination?
With help from our attorney friends who’ve worked with thousands of churches, we will bring clarity to this important topic.
In short, a church cannot make that determination of ministerial election on their own. Generally, to be treated as a minister, a church employee must be ordained by a church or religious body and must perform ministerial functions, like "conducting religious worship" and "performing sacerdotal functions.” This peculiar term refers to traditional functions performed in ministry, such as baptisms, communions, weddings, and funerals.
For most churches, some employees may be accurately categorized as ministers for tax purposes while another subset of employees won't qualify because their role doesn't involve traditional ministerial functions.
For a church considering reclassification of some employees as ministers, there are specialized tax forms to consider, and employees trying to reclassify may have to attest to their ministerial function under oath, submit documentation to the IRS, and receive IRS approval before they can really take advantage of the tax impacts.
Also, there's typically a limited time to apply for the exemption from the time an employee becomes ordained, and they may have to include a copy of the church's bylaws showing they have ministerial power by virtue of their ordination.
What’s next? Here are some next steps that may be helpful for you:
Make sure church leadership knows about the intention to apply for minister status and supports it (it shouldn't really impact the church in any negative way, but it’s always good to keep leadership in the loop.)
Review guidance for ministers that the IRS publishes and begin filling out the necessary IRS form. It also helps to have some “attorney friends” who can assist you in navigating the process. If you don’t know any, no worries! We’d be happy to connect you.
Life in ministry can be tough. We want to help your life in ministry be a little more simplified. Your friends on the frontlines of ministry may find this information helpful, feel free to share. If you have any questions about this or other topics to help you keep your focus on ministry, let’s talk today.
Article By: Jordan Gandara and Joseph Cissell