For tax purposes, a minister is a person who is a "duly ordained, commissioned, or licensed minister of a church." This includes Rabbis and other ordained clergy. Ministers, have a unique tax status. For purposes of Social Security and Medicare taxes, ministers are considered to be self-employed and these taxes are not withheld from their pay. For federal income tax purposes they may either be self-employed or employees of the church or other religious institution.
It's up to the minister and church to determine how the minister should be classified for income tax purposes, although this determination is subject to IRS review. The classification depends on how much control the church exercises over the minister. If the church has the right to direct and control the way the minister performs his or her duties—both as to the final results and the details of when, where, and how the work is done—then the minister is an employee. On the other hand, if the church's control is limited to accepting or rejecting the final results the minister achieves, then he or she is an independent contractor. Most ministers are classified as employees for income tax purposes.
As a result of the Tax Cuts and Jobs Act (TCJA), ministers are better off tax-wise if they are classified as self-employed independent contractors, not employees. A minister who is classified as self-employed may deduct all of his or her work-related expenses in full on IRS Schedule C. However, as a result of the TCJA, ministers classified as employees may deduct none of their unreimbursed expenses. The TCJA eliminated all deductions for unreimbursed employee expenses for 2018 through 2025. Before this change, these expenses were deductible as a miscellaneous itemized deduction on Form 1040 Schedule A. Employee ministers should seek to have their work-related expenses reimbursed by their church. Such reimbursements are tax-free so long as the expenses are properly documented.
Local Transportation: Deductible transportation costs may include trips for hospital and nursing home visits or for other church business. However, trips between a minister's personal residence and the church are considered nondeductible commuting expenses unless the minister has a tax deductible home office. Ministers may deduct trips by car or public transportation. There are two methods to keep track of car expenses: recording all car expenses including how much is spent for gas, oil, repairs, car washes, and so forth; or using the standard mileage rate. With the standard rate, the minister need only keep track of how many miles he or she drives for church business.
Travel: A minister may incur travel away from home occasionally for special conferences or other duties out of the area. The same rules regarding the deductibility of meals and lodging apply as for other taxpayers. These expenses include airfare or other transportation costs and hotel or other lodging expenses. But, only 50% of the cost of meals when travelling on church business may be deducted.
Supplies: Ministers may deduct out-of-pocket costs for office supplies.
Publications: Minsters may also deduct the cost of job-related books and periodicals for which they are not reimbursed.
Dues and Contributions: Ministers often pay a small annual renewal fee to maintain their credentials--this is a deductible expense. However, ministers' contributions to the church are not deductible as business expenses. These are deductible only as charitable contributions, not business expenses. The difference is that charitable contributions are a personal itemized deduction, while business deductions are directly deductible on Form 1040 without itemizing.
Clothing: Ministers may deduct the cost for special vestments--these qualify as uniforms for tax purposes. The cost of care and cleaning of vestments is also deductible.
If a self-employed minister's compensation includes a parsonage or housing allowance which is exempt from income tax, the prorated portion of the expenses allocable to the tax exempt income is not deductible. For example, if the tax exempt housing allowance amounts to 25% of a minister's total compensation, 25% of his or her expenses would not be deductible. The remaining 75% expenses would be deductible on Schedule C.
May 2018