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Business Expenses for Clergy

I starting working on my taxes for 2024. I began working at a different church in 2024. I get a W-2 but pay self-employment tax. At my previous church I received both a W-2 from the church and a 1099 for work I did in as clergy for another entity in the community. I was able to deduct my business expense on a schedule C because of the 1099. This year I have no 1099. Can I deduct mileage and other expenses if I take the standard deduction?

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4 Replies
RobertB4444
Employee Tax Expert

Business Expenses for Clergy

No.  As an employee you are not eligible to deduct any of your expenses.

 

However, there is no reason the church could not pay you on a 1099-NEC instead of a W2 provided the church itself is not dictating your schedule.  If you are deciding the when and where as far as your time goes then you can be paid as a contract employee.  They aren't taking any taxes out anyway.  Go to whoever is handling the payroll and ask them to submit an amended W2 that zeroes out your income and then issue you a 1099-NEC for the money you were paid.  It won't cost the church anything but the time required to make the change and it will allow you to deduct your expenses in order to reduce your taxable income.

 

[Edited 03/24/25 07:20 AM PST]

 

@stherio1 

 

@stherio1 

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Business Expenses for Clergy

It's complicated.  Also, last year, you were only allowed to deduct expenses related to the schedule C job on schedule C, not all your clergy expenses.  Clergy expenses for the W-2 job are only allowed under the following rules.

 

Work-related expenses for W-2 employers are not deductible from taxable income for tax years 2018-2025.  However, they are deductible from your income subject to self-employment tax.  You should receive a W-2 with boxes 3-6 blank, meaning no withholding for social security and medicare tax.  Instead, you pay self-employment tax on schedule SE.  You can deduct ordinary and necessary work expenses from the income subject to SE tax.  This adjustment can only be made using the desktop version of Turbotax installed on your own Mac or PC.  Switch to forms mode and locate Sch SE Adj Wks (schedule SE adjustment worksheet).  The adjustment for expenses is on line 5c.   You can take this adjustment even if you don't itemize your other personal deductions. 

 

However, you must first manually adjust your expenses according to the Deason rule, which takes account of any non-taxable housing allowance.  For example, suppose your total compensation is $50,000, of which $20,000 is a non-taxable housing allowance and $30,000 of wages.  Since only 60% of your wages is considered taxable income (even though the entire amount is subject to SE tax), you can only deduct 60% of your expenses on schedule SE.  You must make these calculations and adjustments yourself, and keep copies of your records for at least 3 years in case of audit. 

 

Work-related expenses may be deductible on your state tax return if your state follows the old IRS law from before 2018, and if you itemize your deductions on your state tax return.  You can enter work-related expenses in the usual deductions section in the main federal interview.  They will be ignored for the federal return but will flow to the state return if you benefit from them.  However again, you must make the Deason rule adjustment, and you must make it manually, Turbotax can't do it for you.  If 60% of your compensation is taxable income as in my example, you could deduct 60% of your mileage, 60% of books and supplies, and so on. 

Business Expenses for Clergy

A 1099-NEC is not allowed because of a parsonage.

Business Expenses for Clergy


@stherio1 wrote:

A 1099-NEC is not allowed because of a parsonage.


If the pastor answers to their denomination (district office, bishop, diocese) or to the church (such as a board of elders or a staff-parish committee that approves vacation time, can set the time and place of worship services, can approve their hiring or affirm their "call" to ministry at that church, etc.) then the pastor is a common law employee, and must receive a W-2.  The church must also report the wages to the IRS using form 941 or 944, and the church may have responsibilities under state law such as paying workers comp insurance or unemployment insurance, family medical leave, and so on.

 

The church does not withhold social security and medicare tax, (boxes 3-6) and state and federal income tax withholding is optional, but the W-2 must be issued.

 

Very few pastors actually run truly independent churches to be paid on a 1099-NEC.

 

I'm not aware that the W-2 is specifically linked to a parsonage.  However, a housing allowance must be designated in adavance and in writing by the board or committee that approves the pastor's compensation package.  The existence of such a committee implies that the pastor is a common law employee, and if there is no such committee and the pastor is truly independent, then I don't think they can qualify for a tax-free housing allowance. 

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