Tax Breaks for Preachers
Working as a preacher gives you the opportunity to share what you believe with others, but it can also provide you with some breaks at tax time. Preachers get several tax breaks that lower their taxable income and their tax liability. If you are a preacher, it is important to understand these tax breaks so that you can minimize your tax bill.
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Self-Employment Tax
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When you work as a minister, the church that you are employed by will not withhold money from your paycheck for self-employment taxes. Preachers get the option to file for an exemption from taxes that fund the Social Security or Medicare programs. The exemptions must be based on objections to these programs for religious reasons. This means that you will not get any credit toward Social Security or Medicare for use when you retire.
Housing
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In addition to being able to avoid self-employment taxes, preachers also get a break when it comes to housing costs. Ministers get to exempt from their income a parsonage allowance. This is an amount of money that is provided by the church to pay for a rental property of some kind. The church must designate a specific amount for the parsonage allowance. This means that the portion of the minister's pay that is allocated for housing does not count toward income.
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Unemployment
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Most churches also do not have to worry about paying into the state unemployment system. If the church elects not to pay into the unemployment system, it leaves more money that is available to pay the minister. While this can benefit the minister, it makes it impossible to file an unemployment claim if the pastor is laid off from the church. This tax break is available in every state in the United States except one.
Considerations
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Although you receive some tax breaks as a preacher, it does not get you out of paying taxes. As a pastor, you must still pay taxes on your income at the appropriate marginal tax rate. To determine how much you must pay in taxes, the total amount of your compensation is reduced by any exemptions and deductions that you claim. Then the amount of your taxable income is multiplied by the marginal tax rate for your income level.
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