Generally, most income you receive is considered taxable but there are situations when certain types of income are partially taxed or not taxed at all. All sources of income are fully taxable and must be included in your income unless it is specifically excluded by law. To help clergy understand the differences between taxable and non-taxable income, Clergy Financial Resources offers a few common examples of different ministry sources of income, but not limited to: Non-taxable income
- Qualified love gifts (person-to-person)
- Reimbursement from an accountable plan
- Church paid HSA contributions
- Housing allowance (federal only)
- Fair rental value of the parsonage (federal only)
- Utilities paid by the church (federal only)
- Church paid moving expenses
- Flexible spending arrangements
- Health insurance paid or reimbursed by the church
- Health reimbursement arrangements
- Pulpit supply
- Bonuses and special occasion offerings
- Personal use of church vehicle
- Sabbatical compensation
- Severance pay
- Social security allowance paid by the church
- Auto allowance
- Professional nonaccountable plan
- Forgiveness of debt
- Holy Land trips paid by the church
- Payment for personal expenses
- Spouse’s travel expense paid by the church (no legitimate ministry purpose)
- Interest on below market loans
- Love gifts (church to minister)
- Discretionary funds (unrestricted)
Some income may be taxable under certain circumstances, but not taxable in other situations. Examples of items that may or may not be included in your taxable income are:
- Life Insurance: If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds, which were paid to you because of the insured person’s death, are not taxable unless the policy was turned over to you for a price.
- Scholarship or Fellowship Grant: If you are a candidate for a degree, you can exclude amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify.
- Non-cash Income: Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties.
Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
For more information or if you need additional assistance, please use the contact information below.
Clergy Financial Resources
11214 86th Avenue N.
Maple Grove, MN 55369
Tel: (763) 425-8778
Fax: (888) 876-5101