Clergy members have special federal tax regulations.
For federal taxes, clergy members serve dual status as self-employed workers and church employees. Full-time clergy may have their federal withholding taxes taken out by the church, while part-time clergy members may have this responsibility through quarterly tax payments. However, the opposite may be true, depending upon the church and the clergy's ordained status. Clergy's tax requirements can be complicated, but with concentration and effort, you can navigate through taxes and fulfill your federal obligation.
Self-Employed
Clergy members -- whether ordained, licensed or commissioned -- are self-employed for purposes of Medicare and Social Security taxes. Churches don't have to pay a portion of these taxes, as they would for lay employees. Churches don't have to withhold Social Security and Medicare taxes. Clergy must, however, regularly pay into those two taxes through quarterly or voluntary monthly, weekly or every-other-week payments.
Employee
Clergy members are employees for purposes of income taxes and pension plans. Churches can withhold pastors' federal and state income taxes, as well as contributions to pension plans sponsored or set up through the church denomination or conference office. Because of this, some of your income may come from self-employment, by law, while other allotments may be considered wages.
Housing
Whether called a housing or parsonage allowance, the federal government allows excludes a pastor's residence from reportable income. For instance, if a clergy member receives a housing allowance of $10,000, the amount is excluded from his total income for federal taxes. However, the housing allowance must be added back into the total income to calculate Social Security and Medicare taxes.
Reimbursements
Clergy members have expenses like travel, membership dues, continuing education and professional expenses that are part of performing their ministerial duties. If the pastor turns in his receipts for reimbursement, these expenses don't have to be reported. These expenses are not taxable compensation, especially if under the church's established policy for reimbursements.
