1. Church and Christian
Ministry Compensation
Concepts
B y Corey A. Pfaffe, CPA, PhD, Spring 2012

2. Employee or Independent Contractor
• Who is an employee and who is not?
• You can ask the IRS, if you wish
• Typical church employees
– pastors
– office and facilities staff
• Typical church independent contractors
– janitorial and snow removal service
companies
– accounting/bookkeeping service firms

3. According to the IRS, who is a minister?
And, what difference does it make?
• A minister is an individual who is a ―duly
ordained, commissioned, or licensed
minister of a church‖ [and other 501(c)(3)
religious organizations] who performs
services ―in the exercise of his ministry.‖
• Dual Status

4. It makes a big difference to be both an
employee and a self-employed person!
• Eligible for all employee benefit provisions
of the Internal Revenue Code, the most
common are:
– Health care plans
– Retirement plans
• 7.65% (5.65% in 2011+) FICA tax
withholding replaced with personal
responsibility for 15.3% (13.3% in 2011+)
SE tax
• Federal and state income tax withholding
optional

5. Typical Minister’s Annual Form W-2
$35,000 Cash salary
30,000 Housing allowance designation
(6,000) Minister’s 403(b) plan elective
deferral
(5,000) Pastor’s optional federal and state
income tax withholding
$54,000 Net amount paid to minister

6. Typical Minister’s Annual Form W-2
$35,000 Cash salary
30,000 Housing allowance designation
(6,000) Minister’s 403(b) plan elective
deferral
(5,000) Pastor’s optional federal and state
income tax withholding
$54,000 Net amount paid to minister

7. Typical Minister’s Annual Form W-2
$35,000 Cash salary
30,000 Housing allowance designation
(6,000) Minister’s 403(b) plan elective deferral
(5,000) Pastor’s optional federal & state tax withholding
Irrelevant
$54,000 Net amount paid to minister
items
• Accountable plan for professional expense
reimbursements
• Health insurance premiums and other
qualified health benefits
• Employer contributions to 403(b) plan

8. Housing Allowance
• Principal residence
• Three-part test
– Actual expenses
– Designated amount
– Fair rental value, plus actual cost of
utilities
• Partial reduction of deductible expenses

9. Retirement Plan Options
• Internal Revenue Code Section 403(b)
plans
• Traditional Individual Retirement Accounts
(IRAs)
• Roth IRAs
(and Roth 403(b) plans)

10. Health Benefits for Ministers
• Health insurance
• Health Reimbursement Arrangements
(HRAs)
• Health Savings Accounts (HSAs)

11. Professional Expenses
• Travel—car (@ $.555/mile), airplane
• Lodging and meals
• Materials
• Entertainment

12. Opting Out of Social Security
• 15.3% (13.3% in 2011+) SECA; not 7.65%
(5.65% in 2011+) FICA
• Requirements
• Caution!

13. For more information...
• Non-profit organization accounting
principles
• Compensation practices
• Benevolent activities
• Contributions issues
• Foreign missions support
• Ministerial tax planning
http://www.ministrycpa.blogspot.com/

14. Visit us at www.ministrycpa.com for more presentations
or to connect with a tax professional.
Visit our Q&A blog at www.ministrycpa.blogspot.com
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