Understanding your Legal Rights as an Ordained Minister of the Gospel

By Cynthia Gordon-Floyd, Certified Public Accountant

The African Methodist Episcopal Church is a body of believers serving the Lord with excellence. The time has come to expand that excellence to our financial education and knowledge, helping our clergy to understand how to maximize their legal rights as ordained ministers of the Gospel.

I have been blessed to serve as a financial consultant for many churches in my financial ministry. I continue to find that many pastors, especially those serving in smaller ministries, are uninformed or misinformed about how to legally maximize their net take-home pay, attend to their families’ ongoing financial needs, and prepare for retirement or disability.

The Internal Revenue Service (IRS) has put in place laws that extend specific rights to ordained ministers. Many of our ordained clergy move through their pastoral responsibilities without knowing precisely what the law requires from them and how the law, in turn, offers assistance and benefits to them. Even our government has recognized—through the laws and deductions created—the undeniable, sacrificial, and irreplaceable benefits provided to the nation by the loving work of ministers of the Gospel.

Many of our pastors are unnecessarily taxed on their income; when in fact, they could be saving thousands of dollars every year in taxes. Should we continue to give Caesar what he doesn’t deserve? Of course not. Our clergy have the great responsibility of equipping the saints, pointing souls to Christ, and caring for the poor and disenfranchised, all while providing for their families as well. Let’s support our clergy with the proper education in taxation.

I am providing a few of the legal tax benefits pastors are entitled to receive. The first is opting-out of Social Security. When our ministers are ordained, they have the option of opting-out of contributing to Social Security from their ministerial income. Making this election will save a pastor 15.3% of their total income earned as a pastor annually. This election must be explored and understood carefully because this election is an important tool in retirement planning.

The second benefit is a housing allowance exclusion. A pastor is not required to be paid a taxable salary before receiving a housing allowance. To minimize, and possibly avoid taxation on a significant portion of their income, each pastor should take advantage of the housing allowance exclusion to its full extent.

The third benefit is a deferred housing allowance. A minister is entitled to establish a deferred housing allowance account while pastoring. This account will allow the pastor to set aside funds which can be withdrawn after retirement as a housing allowance, thereby legally avoiding federal taxation on this portion of their retirement income.

The key words here are “legal rights.” If we know the law, we can easily become IRS compliant and save taxes for our pastors and other members of the clergy. We must know the law, abide by it faithfully, and masterfully apply it to further the needs of our pastors and clergy.