Self-Employment Tax Credit

• The tax rules for ordained ministers differ from traditional regulations. A ministering wife receives a salary from the church that is reported on Internal Revenue Service form W-2 (Wage and Tax Statement). This income is not subject to payroll withholdings. Instead, estimated taxes must be paid on the salary. The estimated tax payments include income tax, Social Security tax and Medicare tax. At the end of the tax year, one half of the self-employment taxes paid into Social Security and Medicare may be deducted as an adjustment to gross income on individual income tax return Form 1040.
  
  

Mileage Credit

• Because many ministers travel to visit members of the congregation and recruit church attendees on a regular basis, mileage is a potentially large tax deduction. A mileage log must be kept for any vehicle used to conduct church business. The log should indicate the start and end destination for each trip and the miles traveled. Receipts for fuel, repairs and parts should be retained for the tax file, as should insurance paperwork and licensing fee statements. An actual expense deduction allows the minister or wife to determine the percentage of the car used for church business and then claim that percentage of the total vehicle expenses as the tax deduction. A standard mileage deduction of $0.51 per business mile may also be taken in lieu of the actual expenses.
  
  

Materials

• Any materials purchased to lead a women's group or children's class at the church are tax deductible when no reimbursement is provided. Subscriptions to magazines focused on church worker female ministry are deductible, as are dues to organizations joined to further ministry skills. All ordinary and necessary expenses incurred during the tax year for ministry use are deductible up to a limit equal to 2 percent of a filer's adjusted gross income.
  
  

Reporting Deductions

• Deductions for expenses accumulated while earning the church's salary must be reported on Schedule A, Itemized Deductions. If additional funds were earned for ministerial work outside of the church, the income and deductions are reported on Schedule C, Profit or Loss from Business. Totals from Schedules A and C are then transferred to Form 1040.
  
  

Home Allowances

• For tax purposes, the home allowance given to either a minister or his wife counts as income when paying self-employment taxes. For example, a minister earning a $50,000 salary and provided with use of a parsonage with a rental value of $6,000 per year must pay self-employment taxes on $56,000. However, income tax is only assessed on the $50,000 salary. Utility allowances are also taxed in this manner. Any funds leftover from allowances after expenses are met are subject to both income tax and self-employment taxes.
  
  

Wages

• If the preacher's wife works within the church but is not commissioned, licensed or ordained, any funds earned are subject to traditional payroll withholdings. Tax deductions and rule specific to ministers do not apply.