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Pastors Hit by New Tax Law: Wait—Maybe Not So Much!

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Question:

A pastor no longer gets a benefit from writing off his unreimbursed ministry expenses. True?

Answer:

NOT TRUE! The most valuable tax benefit for pastors who don’t get fully reimbursed for their ministry expenses by their church or Christian ministry IS STILL AVAILABLE.

TRUE … The Tax Cuts and Jobs Act (TCJA) enacted in December 2017 jettisoned the itemized deduction for unreimbursed employee business expenses. But, based on our experience serving more than 100 ministers, missionaries and ministry workers annually, the TCJA did not take away the most valuable tax benefit of writing off unreimbursed ministry expenses.

Ministers are considered “dual status employees.” This means, among other factors, that most pay their own social security and Medicare taxes—a tax rate of 15.3%. Non-minister employees typically have only 7.65% withheld from their paychecks, while another 7.65% is contributed by their employers.

As we suspected when the TCJA was enacted, and now confirmed in 2018 IRS Publication 517 (page 8, January 17, 2019), ministers who are employees of a church or other Christian organization and incur unreimbursed ministry expenses are allowed to reduce their self-employed taxable income reported on IRS Form 1040, Schedule SE. An attachment explaining the allowable expenses must be provided to the IRS, but unlike the loss of an itemized deduction for unreimbursed ministry expenses, this advantage survived the TCJA.

For example, a minister who incurs $1,000 of out-of-pocket expenses for ministry mileage, air travel, lodging, conferences, meals, publications and other costs will enjoy a reduction of an effective $141 of self-employment tax that is unavailable to typical non-minister employees.


Comments

  1. AndyFebruary 19, 2019 at 7:35 AM

    Thank you for posting this. I have many clients that will benefit from this and I feared it was a lost deduction from the tax reforms.

    ReplyDelete
  2. DRDACPAMay 8, 2019 at 7:01 AM

    Hi Corey, Thanks for giving update on scenario of Pastors that in my opinion seriously have impacted new tax law this year!

    ReplyDelete

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