The Top Five Tax and Personal Finance “Myths” for Pastors By Mark Helland, CPA

The Top Five Tax and Personal Finance “Myths” for Pastors
By Mark Helland, CPA

Mark Helland, CPA is a partner with the accounting firm of Elliott, Dozier and Helland, PC which is located in Tulsa, Oklahoma. Mark can be contacted via email at or by phone at (918) 627-2286.

Over the course of my career in working directly with pastors on their tax and personal finances I have seen a few “myths” that repeatedly come up in conversation and in practice. While I have seen other myths/misunderstandings of U.S. tax law in practice, the frequency of encountering the five “myths” listed below has led me proclaim these to be my personal “top five”. I am not sure how some of these get started, but once they do get started they tend to spread like wildfire. In no particular order, here is my list of top five tax and personal finance myths for pastors:

Myth #1:  I can deduct all of my suits and professional clothing because a pastor is always “on duty”.

Fact:  Clothing purchased for a taxpayer’s employment is rarely, if ever deductible and this has been spelled out plainly in the U.S. Tax Code. The only situation where clothing might potentially be deductible is in the case where a “uniform” is required (For example, an auto mechanic, delivery driver or something to this effect). Suits, expensive as though they may be, are definitely not deductible on the personal income tax return of a pastor and they absolutely cannot be purchased on behalf of a pastor by the church.

Myth #2:  My housing allowance is totally exempt from income taxation.

Fact:  An entire article could be written about the housing allowance and all of the myths that surround this confusing topic. In terms of income tax, even if you are a pastor that has filed a Form 4361 and have opted out of the social security system, your housing allowance could still be subject to income tax. In general, the housing allowance is exempt from income tax, but if you have an “excess” housing allowance which is above and beyond your actual housing expenses for the year, this excess amount is subject to income tax. For example, if your housing allowance for the year was $24,000 and your actual housing expenses were only $20,000, then an excess housing allowance of $4,000 exists and will be taxed at both the federal and state levels. Furthermore, it is critical to understand that a pastor must be able to substantiate their actual housing expenses and failure to do so could result in the entire housing allowance being subject to income tax.

Myth #3:  My housing allowance is not subject to self-employment tax (“SE tax”).

Fact:  In the case of a pastor who has filed a Form 4361 and has opted out of the social security system, this is not a “myth” and this is a true statement. However, if you have not opted out of the social security system, then both your wages and the full amount of the housing allowance is subject to SE tax (SE tax is essentially FICA and Medicare tax, both the employee and employer portions). I once had a pastor strenuously and consistently insist that I was incorrect on this issue. Despite my efforts to show the pastor the specific IRS rules on this issue, I was never able to convince the pastor or achieve any agreement on the issue. I found out later that the pastor did not file our tax return and they instead sought out an unlicensed member of their congregation to re-prepare their tax return for them – without any of the pastor’s income being subject to SE tax. While the pastor saved some tax by having the return prepared this way, they also unfortunately committed fraud with no statute of limitation on how far the IRS could go back in time to audit this tax return (or returns if done in other years too).

Myth #4:  My vehicle is used 100% for ministry purposes, so I can “write-off” all the mileage or my church supplies me with a vehicle and there is no tax consequence to this.

Fact:  Almost no vehicle is used 100% for business purposes or ministry purposes. The only scenario where a vehicle could be considered to be used 100% for ministry purposes would be a vehicle that is parked at the church and is driven only for church business. Driving a vehicle from your home to your place of business is considered non-deductible commuting mileage and is never deductible. Only mileage that is driven for ministry purposes and is not reimbursed by your church could potentially be deducted on your income tax return. Additionally, a detailed mileage log of such trips must be maintained.

For those pastors who have a church provided vehicle, this is considered to be a part of your compensation package and some portion of this vehicle’s use must be included in your personal income. A CPA can calculate what exact amount to include in your income and there are various ways to handle the inclusion of income. The important thing to understand is that a church cannot provide a vehicle to a pastor with no income tax implications, unless the vehicle is parked at the church and is only used for church business – a scenario which is unlikely, at best.

Myth #5:  I am considered to be self-employed, so I have to make estimated tax payments.

Fact:  From my experience, most pastors opt to pay their income taxes by making quarterly estimated tax payments. This tends to be the case because most churches understand that the church must treat the pastor as being self-employed and the church cannot withhold or match FICA/Medicare taxes for pastors. However, a pastor can absolutely have their church withhold federal and state income taxes from their weekly or monthly payroll check. This is completely acceptable as the pastor is simply instructing the church to withhold a certain amount of income tax (not FICA/Medicare tax) from their check. The pastor can then simply “gross up” the amount of federal income tax withheld to be enough to cover both income taxes and self-employment taxes.

There are two primary advantages to having your taxes paid in this manner. First, it is all too easy to forget to make a quarterly estimated tax payment. Second, estimated tax payments must be made on a regimented, quarter by quarter basis and if they are made late, a penalty could be assessed. Withholding taxes are not subject to the same timing requirements and so long as you have sufficient withholdings paid in by the end of the year, a penalty can be avoided. The advantage here is that a pastor can have their CPA analyze their tax situation and additional withholdings can be held out of year end payroll checks to avoid penalties, if need be. We definitely recommend this alternative as opposed to making quarterly estimated tax payments.


This article is designed to provide accurate and authoritative information in regard to the subject matter covered. It is shared with the understanding that neither the author nor Tony Cooke Ministries is engaged in rendering legal, accounting, psychological, medical or other professional services. Laws and regulations are continually changing, and can vary according to location and time. No representation is made that the information herein is applicable for all locations and times. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.

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