Take My Advice, Don’t do Your Own Taxes

March 28, 2016

Look, I get it. When you’re in ministry you feel like you can do everything on your own. Even when it comes to taxes, you think, “Oh, I’ve got this figured out.” You reason that it’s a matter a faith and start quoting scripture. “With God’s help all things are possible,” you say. So you try to file a 1040ez. You know you can’t use a 1040ez, but it’s the only form you understand. So you say, “It’s fine. God has my back on this one.” But you know in your heart that you’re setting yourself up for an audit.

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Taxes Reality Check

Chances are you are not now, nor have you ever been, a tax professional. Don’t try and convince yourself it will be fine. It won’t be. Ministry tax issues are complicated, and if you are not careful you could find yourself receiving back thousands or owing thousands. Neither one is a great situation to find yourself in (even large tax refunds). I know what you’re saying: “But I like getting a big check back.” However, speaking in terms of good financial stewardship, if you are paying too much in taxes you are essentially lending the government money you could be using personally at zero interest, and that’s just not smart money usage. My professional advice: don’t do your own taxes. But if you insist on doing your own taxes, here are some things you need to know.

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Does the IRS Even Consider You a Minister?

Did you know working at a church does not automatically qualify one to file as clergy? GuideStone Financial Resources helpfully outlines some questions to “help determine if a person is a Minister for Tax Purposes:”

  1. Is the person ordained, licensed or commissioned?

  2. Does the person administer ordinances (baptism and the Lord’s Supper)?

  3. Does the person conduct religious worship?

  4. Does the person have management responsibilities in the church?

  5. Is the person considered to be a religious leader by the church?

They continue, “Generally, a Minister for Tax Purposes must be ordained, licensed or commissioned and answer “yes” to a majority of the other four questions.”

But how does this designation in the eyes of IRS affect you? If you are considered a Minister for Tax Purposes, then the following apply to you:

  • You are eligible for a housing allowance.
    • However, this has to be declared by your church and has to be done in advance.
  • You are considered self-employed in regards to Social Security taxes.
    • And you’re supposed to pay this quarterly to the IRS, unless you’ve opted out.
  • You are exempt from Federal Income Tax withholding.
    • However, like Social Security, if it is not withheld, this is supposed to be paid quarterly by you.

This is incredibly important, so we will state it again: You have to use the quarterly estimated tax procedure to pay your taxes unless your church is willing and able to voluntarily withhold for you. If this is the case, you need to fill out Form W-4 with your church.

Why is it so Confusing?

The Problem is most ministers have a special dual tax status. You are considered:

  • Employees for federal income tax purposes
  • Self-employed for Social Security tax purposes
Filing Taxes - 1040 Form by Philip Taylor

Photo by Philip Taylor / CC BY

This means a minister must pay the full Self-employment Contributions Act (SECA) tax amount. Unless you opt out. If you do not know if you have opted out of social security, that means you have not opted out of Social security. Trust me, you would remember if you did.

The Forms are Piling Up

Here are some links that might help if you really think you are up for the challenge of filing your own taxes:

Ministerial Tax Issue By Guide Stone

IRS Social security and other issues for clergy.

Application for Self-employment tax exemption.

Dave Ramsey Should ministers opt out of SS

You Don’t have to be Good at Everything

Remember: It’s ok to ask for help, and this is definitely an area you want to ask for help in. Please take my advice and find a CPA that has experience in doing clergy taxes. Make sure you ask them specifically about doing clergy taxes. I learned the hard way when I was very young in ministry that just being a CPA did not make them an expert in clergy taxes.

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