If you are looking for church and clergy tax information, I think I can point you in the right direction … as long as you understand two things:
* I am not a tax advisor and this is not financial or tax advice.
* I don’t know anything about taxes in countries other than the USA.
Church Accounting Guide
We have a saying in the USA that goes, “Only two things are guaranteed in life: death and taxes.” You would think, then, that church and clergy tax information would be easy to find and simple to understand. Unfortunately, neither is the case.
I’ve attended or pastored seven different churches. Each one handled taxes differently. As best as I can tell, none of them did anything illegal. But each managed church and clergy tax differently.
In my experience I learned that when it comes to church and clergy tax issues, three things are very important.
* Read and follow a reputable church and clergy tax guide. My favorite is Worth’s Income Tax Guide for Ministers: 2009 Edition
* Choose an expert advisor for clergy tax preparation.
* Know where to find clergy tax help when you need it.
I follow these three guidelines closely, and to date, I haven’t been audited.
Your Pastor and Social Security Tax
In the USA, pastors don’t have to pay social security tax on income received in return for performing pastoral duties … as long as they first file the appropriate paper work with the IRS.
I’d like to make three observations about pastors and social security.
* Pastors can’t opt out just because they don’t want to pay social security taxes. They must be opposed to receiving secular/government support (retirement) for doing religious work. Your pastor has to agree to a very strong statement of conviction before the IRS gives an exemption.
* Pastors who opt out of social security must be disciplined enough to put aside and invest the 7.5% of their income that would have gone to social security. Churches can help their pastor do this by deducting 7.5% from the pastor’s paycheck and sending it directly to the investment of the pastor’s choice.
* Churches should pay half of a pastor’s social security tax … just like all other businesses do. Some churches I’ve been in like it when the pastor opts out of social security because they don’t have to pay the employer’s 7.5%. But if you adopt this attitude in your church you are cheating your pastor out of 7.5% of his retirement. If he earns $20,000 per year, you are taking $1,500 out of his retirement fund per year. And if your pastor stays at your church for five years, you’ve reduced his retirement by $7,500 plus interest. You were going to pay the 7.5% anyway if your pastor was involved in social security. You’re not losing anything by contributing that amount to a retirement fund.
A FREE Resource
It’s rare these days to find anything of value for free. So I’m quite skeptical when I hear about something being offered for nothing. However, I’ve discovered an exception. Vickey Boatright is an accountant who has put together an incredible web site with church and pastor tax information. In addition, she has created several valuable financial spreadsheets that you can download for free. I highly recommend you take a look at the information she has available. Her site is appropriately titled, Free Church Accounting.
Conclusion
Church and clergy tax can seem like a very complicated and strange process. But if it weren’t complicated and strange it wouldn’t be from the IRS!
I am not a tax advisor, and what I’ve said here is not financial or tax advice. But I share my own experience in order to point you toward people and resources that can help you with church and clergy tax preparation.
Take special note of the caution I mentioned above, and carefully consider your role in your pastor’s social security situation.
And as you pursue church and clergy tax information, remember …
* Read and follow a reputable tax guide. My favorite is Worth’s Income Tax Guide for Ministers: 2009 Edition
* Choose an expert advisor for church and clergy tax preparation.
* Know where to find clergy tax help when you need it.
