Article By Darrell Cox
Cornerstone Conference IPHC
As tax time approaches sooner than any of us desire, now is the time to think about what churches can do to alleviate the tax burden on its ministers. Here are three suggestions to consider:
Designate A Housing Allowance For All Ministers, Even Those Living In A Parsonage
The housing allowance portion of a minister’s pay package is not subject to federal taxes, although it is subject to the self-employment tax. The housing allowance is the minister’s greatest tax benefit, and the amount must be determined and approved by the Local Church Administrative Council and included in its official meeting Minutes at the beginning of each year.
Identify Benefits That Can Be Legally Structured As Tax-Free Benefits
For example, rather than providing cash allowances in the minister’s pay package for insurance or retirement, the church can consider providing group health insurance and make pre-tax contributions into employer-sponsored retirement programs such as the IPHC 403-B Retirement Plan.
Set-Up An Expense Reimbursement Plan
Ordinary and necessary business expenses such as travel should be reimbursed to the minister by the church instead of included in the minister’s pay. If these type expenses are currently being paid by the minister or reimbursed in a non-accountable way, the church should restructure its budget so these expenses are paid by the church.
If you have questions concerning minister’s taxes, be sure to consult a tax professional familiar with the very specific IRS provisions related to ministers. There are lots of helpful resources available, and here are just a few: