Today is the big day! The IRS has officially opened the 2020 tax filing season for individual filers. We should throw a party! Better yet, let’s talk about how to go about filing those tax returns that they are now accepting. As a pastor, you have unique tax issues like the housing allowance and being dual status, so it’s not as easy for you as it is for others. You can’t just use any old tax software and trust that your taxes will be prepared correctly.  Awhile back, I was asked which tax software is best for pastors. I didn’t actually know, so I turned the question over to my readers. This article is the result of my completely unscientific study with a small sample size. If you would like to contribute to our collective knowledge, please share your experience in the comments! Tax Preparation Software Programs For Pastors According to my readers, TurboTax ...

Tax season is just around the corner and that means I’m about to be inundated with tax-related questions. Today, I’m going to try to get ahead of the game and start answering the questions before you ask them. Up first, when is a pastor an employee or self-employed? Pastors Are Always Self-Employed For Social Security Taxes We’ll start with the easy part. When it comes to Social Security and Medicare taxes, also known as payroll taxes, you are always considered self-employed. Pastors are always self-employed for Social Security taxes and pay under the SECA system. You have no choice in the matter and there is no debate. You’re always considered self-employed. You can read more about why and what that looks like here.  When A Pastor Is Self-Employed For Federal Income Taxes Because pastors are always taxed as if they are self-employed for Social Security purposes, that brings a lot of confusion into the ...

It’s a new year, a new calendar, and many are hoping, a new beginning, too. The sense of a fresh start with the new year leads a lot of people to make new year’s resolutions. How about you? Since 51% of 2019 new year’s resolutions were to save money, I figure some of you are looking to tackle your finances this year and I want to help. Below, I’ve listed 15 different free resources ranging from budgeting systems and high-yield savings accounts to Social Security estimators and housing allowance tools. There’s quite a variety, so there’s something for everyone.  Basic Financial Management Easy-To-Use Budget Template The same study I referenced above found that 35% of new year’s resolutions were to stick to a budget. That’s a lot. Budgeting is the foundation of any successful financial life. It looks like people realize the importance of budgeting but they struggle to do it. One of the reasons ...

Back in 2017, the president timed things just right so that I spent the first day of my family’s Christmas vacation researching the tax reform bill and how it affects pastors. Now, almost two years to the day, he signed into law another sweeping financial reform just in time for me to fly down to visit my family for Christmas. Thanks, Congress, I really appreciate your timing. The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law on December 20, 2019, as part of a year-end appropriations bill to keep the government running. It makes significant changes to retirement plan rules that affect most Americans. Also included in the 1,770-page bill was the Taxpayer Certainty and Disaster Relief Act of 2019, which could affect how you file your tax return in the coming months. While there are no changes to the laws as they relate to pastors ...

Here we are again, wrapping up another year. I’ve made a tradition of using the last post of the year to look back and see which articles were the most popular so that you can go back and read them if you missed them. (Just click the title to read each article.) This year’s articles ranged the spectrum from side hustles to taxes and, of course, the housing allowance. Ranked according to the number of views over the past year, these are the most popular articles of 2019: 1. Secular Jobs For Pastors: 9 In-Demand Skills You Already Have This article was in third place in 2018 but has gained the lead with nearly 3,000 more views than its closest competitor. It describes the different skills that most pastors have and how they can be communicated in a way that the secular world will understand.  This is great for any pastor looking to create ...

Every year, my church used to do a special offering in December as a Christmas gift for our senior pastor. As they said, why should he get a bunch of $10 gifts that he doesn’t even need when we can pool our resources so that he can buy something bigger that he really does want? It’s a good approach for everyone involved, even the IRS. You see, just because you and I call something a gift doesn’t mean the IRS doesn’t see it as taxable income. In my example, the Christmas gift we raised for our pastor would indeed be considered taxable compensation for him. In most cases, Christmas gifts are taxable income for the pastor who receives them.  Gifts From The Church Organization If your church as an organization gives you a Christmas gift or bonus, it is almost always a taxable gift. When an employer gives an employee something, it is ...

The new year is just around the corner, so it’s time to be thinking about your 2020 pastor’s housing allowance. Here are a few things to keep in mind as you make your plans. Your Housing Allowance Should Be Approved In December The housing allowance for pastors is not and can never be a retroactive benefit. Only expenses incurred after the allowance is officially designated can qualify for tax exemption. Therefore, it is important to request your housing allowance and have it designated before January 1 so that it is in place for all of 2020.  If your expenses are pretty regular from year to year, it is a good idea to use language such as “this designation shall be effective until modified by…” That way, you don’t have to request a new allowance each year. It Is Limited  You may not be able to claim all of your housing expenses for tax exemption. The ...

We are nearing the end of open enrollment on the Obamacare healthcare exchanges. If you are not satisfied with your current health insurance (or lack thereof), now is the time to address it. Health insurance is a big topic among pastors because many churches do not have the resources to provide insurance the way large for-profit employers do.  What is a pastor to do? Here are your options, depending on whether or not your church is willing and able to help you out in this area.  On Your Own Many churches struggle to pay their pastors a salary and only dream of being able to help with healthcare costs. If you’re serving one of those churches, you still have some options. While in the US healthcare is often tied to employment, it doesn’t have to be. Pay Cash The most basic option available to you is to just pay cash for your healthcare needs, the ...

One of the greatest financial benefits available to pastors is the ministerial housing allowance. Unfortunately, it is also one of the most misunderstood aspects of a pastor’s finances. Most pastors are aware of its existence and benefits but still have questions, like: Who is eligible to claim a ministerial housing allowance? How much housing allowance can a pastor claim? How do you calculate a housing allowance? If you want to know the answer to any of those questions, just click on the link. Today’s article discusses one of the biggest fallacies of the housing allowance, that you can only claim a parsonage or cash allowance, but not both. The Difference Between The Parsonage & Cash Housing Allowance The ministerial housing allowance is a way for ordained, licensed, or commissioned religious leaders to avoid paying federal income taxes on their housing expenses. It only applies to federal income taxes and not Social Security and Medicare taxes. The housing ...

Most pastors don’t go straight from high school or college into the pulpit. Usually, you spend a few years in the secular workforce before settling into your pastoral vocation.  I think that’s a good thing. It gives you some practical work experience, exposes you to how people outside of the church live and work, and, depending on where you work, it can make you really, really appreciate working with Christians once you’re on church staff. At least that was my experience. Another thing that working a secular job before joining the ministry does is that it forces you to begin paying into the Social Security system. Remember, pastors are unique in their ability to opt out. Everyone else just has to do it and has no say in the matter.  But, what happens to the money that you put into the system if you choose to opt out once you become a licensed ...