Tax Benefits That Come With Being a Pastor

By Christine Bove

Did you know that there are tax benefits to being an ordained pastor?

That’s right! The government gives certain benefits to pastors and ministers who have gone through a formal ordination process. 

Pastors can receive some major tax breaks. However, they can also end up overpaying on their taxes if they’re not taking full advantage of the benefits offered. 

There are three main tax benefits for pastors: 

• Housing Allowance
• Self-Employment Tax Exemption, and
• Mileage Reimbursement.

Understanding and using these three benefits will transform your taxes and be a blessing to you.

Get These Benefits:

Housing Allowance

Housing allowance is one of the greatest financial benefits available to pastors. Every pastor can and should take advantage of this tax benefit! The title is misleading. Housing allowance isn’t an actual form of salary given to pastors, but instead it’s an exclusion of taxes based on your housing expenses. 

That being said, you will want to set it up as a designation of salary as opposed to an additional form of compensation. 

Taking full advantage of housing allowance can take some planning and documentation. But once the planning and documenting on the front end is taken care of, the rest of the process becomes easier. 

Are your and your church’s ministers taking taking advantage of housing allowance? If not, consider our housing allowance service to help you set it up properly! 

Self-Employment Tax Exemption

The self-employment tax exemption is a benefit that many pastors are unfamiliar with. With this benefit, ministers are able to opt out of paying self-employment taxes on their ministerial wages. For ministers who have already earned their 40 credits or who are bi-vocational and don’t need their ministerial wages to count towards Social Security, opting out can relieve your tax burden without affecting your social security benefits. 

 When you apply this benefit correctly, a pastor is exempted from paying the 15.3% self-employment tax without losing any social security benefits. 

Learn more about self-employment exemption by reading our previous blog post here.

Reimbursement for Mileage from Home

Another benefit that is widely underutilized by pastors is mileage reimbursement for the miles driven for ministry business.  

For example, if your home office meets certain requirements, you are able to be reimbursed for the mileage from your home to the church office. 

To see if your home office qualifies, check this previous blog post here. 

Keep in mind, the IRS updates mileage reimbursement rates annually. For the 2019 rates, see IRS Notice 2019-02.

New Law 

The Tax Cuts and Jobs Act, which is the new tax bill that was signed into law at the end of 2017, affects how to appropriately handle reimbursements for expenses you pay for out of pocket for your ministry. 

To read the full law change, you can find it on the IRS website here.

This new law no longer lets you write-off unreimbursed expenses on your personal taxes. 

To be reimbursed for those expenses, your church needs to have an accountable reimbursement policy in place. 

You’ll definitely want to take advantage of this benefit so you can get the money back that you invested into your ministry. And it is especially useful to enact now before new tax season begins.

Get Ahead Before Tax Season Starts

Taxes can be confusing and sometimes overwhelming. But once you know the benefits available to you, it can become a lot more manageable. 

It also becomes much more manageable when you know ahead of time and aren’t fighting the clock to get everything taken care of in time to file your taxes. 

At StartCHURCH, we care about pastors like you and want to make sure you are equipped with the best tools and knowledge for yourself and your ministry. We have a dedicated team that specializes in ministers’ taxes to help you receive the greatest benefit possible. 

Click here for more information about our minister’s tax service or call us at 877-494-4655. 

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