Tax rules regarding ministers and religious congregations in the United
States are even more convoluted than they are for everyone else. Tax laws change frequently and
their interpretation is often as much an art as a science. Since the staff of the Office of Church
Staff Finances (OCSF) are not qualified tax experts, Unitarian Universalist (UU) organizations are urged to consult and rely upon
their own tax advisors in compensation, pension and tax matters.
The following guides on church tax issues have been found helpful:
The most basic and perhaps most
confusing question about ministers and the tax law is whether ministers are self-employed or
employees. The answer is that U.S. ministers have dual tax status in the eyes of the IRS.
However, religious bodies are not required to withhold income tax for “ordained, licensed, or
commissioned clergy,” although they must withhold income tax on the earnings of their nonordained
Ministers may opt to have their employer-congregation withhold and pay income tax and SECA
for them, as is done for other employees on form 941. There is no tax benefit to this arrangement
other than alleviating the minister from the quarterly paperwork of self-reporting.
The minister’s annual salary is reported in box #1 on
the W-2 under “wages.” In box #2 for “tax withheld,” write the word “minister” unless tax has
been withheld as for other employees.
The clergy housing allowance is not reported on form W-2, but must be reported by the minister
on Schedule SE as part of the annual return Form 1040. The clergy housing allowance amount
should be documented by the church Treasurer in a separate letter for the minister to attach to his
or her return. The pension plan box may be checked.
Ministerial Compensation can be divided into five categories. The OCSF has separate
handouts describing Professional Expenses, Clergy Housing Allowance, and the Unitarian Universalist Association (UUA)
For more information contact ocsf @ uua.org.
This work is made possible by the generosity of individual donors and congregations.
Please consider making a donation today.
Last updated on Tuesday, April 16, 2013.
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