As we’ve discussed previously, churches are not required to withhold taxes for pastors and other clergy. Because of a minister’s dual taxation status, the IRS expects them to pay as if they were self-employed.  How do self-employed people pay taxes? Through quarterly estimated tax payments. So, as a pastor, you’re required to make quarterly estimated tax payments. What Are Quarterly Estimated Tax Payments? Our American tax system is a pay-as-you-go system. Many people don’t realize this because they think they only pay once a year- on April 15. However, most employees are paying all year long, out of every paycheck. The yearly tax return they file is just to check their balance for over- or under-payments.  The IRS doesn’t want to wait a year to get their money. They want it immediately, which is why most employees are subject to mandatory tax withholding. Self-employed people, though, don’t have an employer to withhold their taxes for ...

You’ve done it! You’ve fought the good fight, run the race with perseverance, and now the time has come to retire from your post. You did a good job and your church loves you. They want to bless you in this new season of life, so they write you a big check. While you’re thrilled and grateful, there’s one important question you need to answer before you start spending it: Do you have to pay taxes on your retirement gift?  Most Gifts To Pastors Are Taxable Usually, gifts to pastors are considered taxable income. The IRS is pretty strict about that and tax court cases have been decided that lay out their criteria and reasoning. While your congregation might not realize it, pretty much anything they do for you that’s related to the fact that you’re their pastor constitutes taxable income for you.  A $50 thank-you after a baptism? Taxable income.  A cash birthday ...

If you google the question should pastors opt out of social security? you will find a number of passionately written articles with strong opinions. But they’re all wrong. It’s not really a valid question, especially for an internet search. It’s like asking: Should pastors preach exegetical or topical sermons? Should offering come before or after the sermon? Should I make tacos or hamburgers for dinner? Should I marry a guy with black hair or brown hair? You see, the problem with the question is that there isn’t one right answer. It’s subjective. It’s based on an individual pastor’s personal convictions and beliefs. And anyone who tries to tell you otherwise is a little too big for their britches, to put it nicely. Why Pastors Opt Out Of Social Security When you fill out Form 4361 to opt out of Social Security you have to sign a statement that says, I certify that I am conscientiously opposed to, or ...

Today’s post was inspired by one of my loyal readers who had a very frustrating time trying to figure out the answer to that simple question. Unfortunately, I’m too late to come to his rescue, but my hope is that others of you may find this useful. It Doesn’t Work Like The Housing Allowance I think this subject may actually be harder for pastors than for others. Why? Because of the clergy housing allowance. The housing allowance is exempt from taxation. IRA contributions are tax-deferred, which is basically exempt from taxation at the present time. So shouldn’t they work the same way? Hardly. Which can throw pastors for a loop.  With the housing allowance, it’s never even included in your income. It never shows up on your W-2. The only way the IRS even knows you got the money is when you pay your self-employment taxes, if you didn’t opt out. If you did ...

For almost 100 years, since the Revenue Act of 1921, pastors in the United States have had the privilege of living in employer-provided housing without having to pay income taxes on it. Back then, it was common practice for churches to provide a home, or parsonage, for their pastors.  By the 1950s, it wasn’t quite as common. As the number of churches increased, many simply did not have the funds to provide a parsonage. This forced the pastors to find their own place to live and pay for it out of their taxable income.  Congress felt that this was unfair discrimination between pastors, that some didn’t pay income taxes on their housing while others did. So, in 1954, they expanded the law to include the payment of a "rental allowance paid to him as part of his compensation, to the extent used by him to rent or provide a home." This ...

Side business, side gig, tent-making ministry, side hustle, part-time self-employment, side job; doing some extra work on top of your regular job has a lot of different names these days. No matter what you call it, a lot of pastors (and their spouses) see it as a good way to provide for their families when serving in a position that doesn’t pay quite enough.  We have discussed different ideas for side jobs for pastors on this blog previously and even took an in-depth look at how one pastor’s wife has used Airbnb to augment her husband’s pastoral salary. We also spent some time discussing the ethics of pastors and business and how to maintain boundaries between your business and ministry.  Today we’re going to get really practical. How do you actually go about starting your own little business on the side? 1. Pray I know this should go without saying, but I know from ...

So, you’re entering the ministry and you’re excited. You’re excited to devote your life to God’s work. You’re excited to make an eternal impact on the world. And you’re excited to do your taxes in a completely new way. No, not really. If that kind of thing excited you, you would be a CPA instead of a pastor. Even though you’re new to pastoral ministry, you’ve probably already heard a thing or two about clergy taxes from seasoned veterans. And there’s a good chance that there are conflicts in what you’ve heard. One of the biggest areas of confusion when it comes to a minister’s taxes relates to Social Security and Medicare. There are a lot of myths floating around, both inside and outside the church. Let me see if I can clear things up for you. How Social Security & Medicare Taxes Work Social Security and Medicare taxes are paid by all workers ...

Summer is in full swing and that means house listings are skyrocketing and people are moving. This has been on my mind as our neighbors behind us just sold their house and we have yet to meet our new neighbors. Hopefully, they’ll be nice! Moving is a big undertaking. Packing your things, transporting them, figuring out the logistics of it all, and trying to make sure nothing gets dented or dinged or forgotten in the process. It’s a lot of work, both mental and physical. In addition to all of the usual chores of moving, pastors have to think about their housing allowance as well. I’ll give you a hand and lay it out for you. If you’re a pastor with a housing allowance, this is what you need to do when you move: Calculate Your New Expenses Are your expenses going up or down? You need to calculate your expenses and find ...

Thanks to the Tax Cuts & Jobs Act, people are paying a whole lot more attention to their tax withholdings this year. Employers had a hard time calculating withholdings with all the changes in the law and the result was far fewer people getting big tax returns (which I think is actually a good thing!) and more people owing. (Don’t get mad at the employers, though, no one really knew how it would all play out.) So, with this renewed interest in tax withholding, I thought it would be a good time to go over how it all works for pastors. Because this is yet another area where it’s different for pastors than for everyone else. While some church employees do have to pay their taxes differently, the information in this article is only for pastors and does not apply to non-ministerial church workers. Mandatory Withholdings If you work a secular job, your ...

Here in the Pacific Northwest, it is strawberry season. For most of us, that means we get to chow down on juicy berries that make us avoid the bland store-bought strawberries for several months afterward. For my daughter, it means business. Literally, business. The minute the signs go up for the U-pick strawberry field near our house she starts asking when she can sell strawberries. You see, rather than just eating them, she likes to pick them and then set up her own stand by the side of the road to resell them. Yes, that’s her in the picture above. It’s funny because at 5 she doesn’t seem to really care about money. Until strawberry season. Then, it’s all about earning money. I think it’s a good thing. There are a lot of important life skills and lessons she’s learning as she sits in that field selling her wares. I think every ...