Alabama Baptist State Board of Missions church compensation specialist Lee Wright said that in this tax season, ministers must remember all income from the church is reportable income, including recognition gifts for anniversaries or Christmas.

“The exception is ‘de minimis’ gifts of low value such as occasional theater or sporting event tickets, office snacks and occasional use of the photocopy machine,” he said. “Direct gifts from church members are exactly that — gifts — but if the church sponsors something, this is considered income by the IRS.”

Wright shared tax tips during the Ministers Tax Conference at Birmingham Metro Baptist Association on Feb. 15. He said confusion also exists about a minister’s dual tax status.

Pastors and other ordained ministers on staff should never receive Form 1099 for compensation from their church, he said.

“An evangelist, a supply preacher or perhaps an interim pastor might, but the IRS considers a pastor an employee for federal tax purposes and should get a W-2 from the church, though he is considered self-employed for [Self-Employed Contributions Act] taxes.”

The dual designation also allows for the church-approved housing allowance.

Housing allowance

“The U.S. Supreme Court affirmed this allowance, and though Congress could change it, I don’t see this happening in the foreseeable future,” he said.

The housing allowance is determined beforehand with church approval and can be as much as the fair rental value of the house, furnished with utilities.

“This means that the housing allowance expended is not subject to federal income tax, though it is reported as SECA income (15.3%).”

Wright said the housing allowance doesn’t help everyone, and a church must never ordain a staff minister merely for the tax benefit.

“The purpose of ordination is a higher purpose than a tax savings and may not even offer that much benefit to a staff minister,” he said.

Wright said compensation planning for ministers is important because business expenses are not allowed as a deductible expense for ministers since the Tax Cuts and Jobs Act of 2017.

“The standard deduction in 2024 is $29,200 (married filing jointly), so fully 95% of federal taxpayers find this more advantageous than itemizing deductions,” he said. “The state of Alabama allows the traditional deductions for medical expenses, home mortgage interest, charitable contributions and other items, but this isn’t an issue for most federal taxpayers now.”

Churches should offer a reimbursable expense plan for their ministers for expenses such as travel, conferences, books, cellphones and other ministry expense items, Wright noted.

The accountable expense plan requires documentation and presentation for payment at least every 60 days. Unless this kind of plan is adopted, the minister loses legitimate business expense reimbursements.

Wright offers a number of tax and other financial issues materials at alsbom.org/ccs. For more information on tax issues for churches and ministers, contact Lee Wright, lwright@alsbom.org or 334-613-2241.