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Robin D.
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Our pastor receives a 1099 yearly. do we have to include his

Resolved Question:

Our pastor receives a 1099 yearly. do we have to include his co-payments for insurance that we make for him and that we pay his cell phone bill that is in his name?
Submitted: 3 years ago.
Category: Tax
Expert:  Robin D. replied 3 years ago.

Robin D :

Hello and thank you for using Just Answer.

Robin D :

The church is required to report any salary paid [in excess of the Housing Allowance] on a Form W-2, NOT a 1099 like all other self employed persons.


With the exception of the housing allowance, there is no other section in the IRS code that allows churches to pay the minister any type of allowance to cover personal expenses and it be tax free. Income tax regulations require that any and all money given to the pastor be reported as income. Section 62(a)(2)(a) allows the church to help the pastor with his expenses, if the church adopts an accountable reimbursement policy that requires reimbursements to be substantiated as a necessary business expense.
I hope this information is helpful

Customer :

We have always paid him on a 1099. he is a self employed. He has another job and only does this part time. So are you telling me that the 1099 only includes his housing and everything else should go on a w-2

Robin D :

 


There are several tests used to determine employee status based on IRS regulations and various court cases such as the amount of control exercised by the hiring party and the amount of discretion exercised by the worker in performing the work; skill required for the work; the source of facilities, tools and administrative support; the location and duration of the work; the method of payment; and other characteristics.



Most ministers should report their income as employees. Not only is it likely that the IRS would consider the minister to be an employee in an audit, this treatment is typically more favorable for the minister.


 



Income as an itinerant evangelist, guest speaker, supply pastor and for performing services (baptism, marriages and funerals) will likely be considered self-employment income. The following is straight from IRS Pub 517:



If you are employed by a congregation for a salary, you are generally a common-law employee and income from the exercise of your ministry is considered wages for income tax purposes. However, amounts received directly from members of the congregation, such as fees for performing marriages, baptisms, or other personal services, are considered self-employment income.
Robin D :

Regardless of how you handle the employment, all payments made to the pastor except houseing is taxable. If he is receiving a W2 then you can set up the accountable plan and reimburse him for expenses so he would not be taxed on those.

Customer :

Thank you for your help.

Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7714
Experience: 15years with H & R Block. Divisional leader, Instructor
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Robin D.
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15years with H & R Block. Divisional leader, Instructor