Skip to main content

SE Tax Trauma


Missionaries, as most ministers, are subject to both federal and state income taxes and self-employment tax.

Consider the following example. An independent missionary on deputation earns enough income (after deducting all allowable travel and ministry expenses) to owe $6,000 in self-employment (SE) tax on his support. Due to write-offs against his income taxable earnings (housing allowance, personal itemized deductions, personal exemptions for his family members, etc.) he not only owes no income tax, he receives $3,000 of credits that can gain him a refund check from the IRS even though he paid nothing in. Then comes his SE tax--ouch! Instead of receiving a refund, he must write the IRS a check for $3,000.

He asks, "Is there any legal way for me to file differently and avoid the Form 1040, Schedule SE tax?


Missionaries in the above situation should consider at least two matters.

First, travel and other business expenses incurred while on deputation reduce reportable SE earnings. Many mission agencies require their missionaries to submit regular reports documenting their financial activity. Not only is this good stewardship on behalf of the supporting churches and individual donors, it makes good tax sense for the missionary. The mission agencies then issue to their missionaries Form W-2 which include only the portion of their support that is taxable after excluding reimbursements sent to the missionary for tax-deductible expenses.

Second, a missionary may consider applying for exemption from SE tax by filing a timely Form 4361. See my answer to Question 9 in the link below to my website:

Top 10 Questions that Pastors ask Tax Preparers

One final "reality check." Paying the 15.3 percent SE tax is a burden and reality that most missionaries and ministers face. While non-ministers have the 7.65 percent FICA (social security and Medicare) tax withheld from their gross earnings and matched by their employers, ministers must pay "both halves" but can pay this tax on their net (after business expenses) earnings. Accordingly, missionaries are well advised to either make quarterly federal estimated tax payments or to request federal income tax withholding by their mission agencies.


Popular posts from this blog

Qualified Small Employer HRAs

On December 13, 2016, President Obama signed the 21st Century Cures Act, allowing qualified small employers to offer Health Reimbursement Arrangements (HRA) that follow certain terms.

After the Affordable Care Act was passed, the IRS originally determined that an HRA was not a qualified group health plan. The Cures Act overrules this decision. HRAs are again an option for qualifying small employers.

To be eligible, the small employer must have fewer than 50 employees and must not offer a group health plan to any of its employees.

The Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) must be subject to the following terms.
No salary reduction contributions may be made (i.e., 100% employer-funded).Employer must receive proof of employee’s minimum essential coverage.Reimbursements must be for qualifying medical expenses.Reimbursements for any year cannot exceed $4,950 (or $10,000 for family coverage), which will be adjusted annually for inflation.Employer must offer the …

Housing Allowance when Bartering for Rent Payments


If a minister rents his principal residence, but he performs services (mowing the lawn, repairing the roof, etc.) in lieu of rent, can he still qualify the rent amount for a housing allowance tax benefit?


Of course, bartering income is taxable. The Internal Revenue Code interprets that above situation as follows: tenant/minister receives taxable income for the fair market value of the services he provides, andtenant/minster pays landlord for renal of residence. The minister in this case reports taxable income for services provided in lieu of rent. It is also likely subject to self-employment tax. He may then claim as qualifying housing allowance expense equal to the amount he "pays" for rent of his personal residence. Essentially, there is no difference than if the minister and his landlord simply traded checks.

See a past MinistryCPA post regarding this topic:

Mission Trips Involving Both Charitable and Personal Time


A church group went on a two-week mission trip, and a few of the members stayed an additional two weeks for personal time. Will the members who stayed the two additional weeks be able to deduct expenses from the trip?


IRS Pub 526 covers the topic of Charitable Contributions and, more specifically, travel expenses associated with charitable trips. The publication states that travel expenses will be deductible “if there is no significant element of personal pleasure, recreation, or vacation in the travel.” The publication also states, “The deduction for travel expenses won't be denied simply because you enjoy providing services to the charitable organization. Even if you enjoy the trip, you can take a charitable contribution deduction for your travel expenses if you are on duty in a genuine and substantial sense throughout the trip. However, if you have only nominal duties, or if for significant parts of the trip you don't have any duties, you can't deduct you…