A Tale of Two Pastors, Part One--Minister's Taxes

By Raul Rivera

Please join me as I take a few moments to share with you the tale of two men who pastored churches in different states.  Though they lived almost 1,000 miles apart, they had very similar circumstances.  If it was not for the one thing that distinguished their ministries, one would think they were one and the same person.  

Pastor Smith

Let me begin with Pastor Smith.  A pastor in Greensboro, North Carolina, who started his church in 2005, Pastor Smith has two children and a beautiful wife who has labored faithfully with him since the start of the church.  Services initially began in their own house but when the church grew to about 25 adults, they decided it was time to rent a facility.  Thankful they had been saving up most of the church's income, in early 2008 they found a 3,800 square foot building that housed all of their ministry needs.  With a sanctuary large enough for 200 people and with children's church facilities, youth facilities, and offices, Pastor Smith knew that God had found for them the perfect place. 

Pastor Jones

Let's look at Pastor Jones.  He is a pastor in Little Rock, Arkansas, who also started his church in 2005.  Like Pastor Smith, he has 2 children and a very beautiful wife who has labored faithfully at his side since the start of his church.  Their services began in the basement of their house and eventually grew in number to about 25 adults.  Much the same as Pastor's Winner's church, this pastor also saved most of the church's tithes and offerings in a savings account, which was enough to allow them to rent a facility of about 3,800 square feet--sufficienct to house their church offices, children's church and youth ministries.   Their sanctuary, too, has room for about 200 members and Pastor Jones is convinced that God has provided the perfect place for their church. 

A Little Bit More About Pastor Smith

Pastor Smith did not know much about the business side of church, but he was blessed to experience in 2009 something that many pastors dream will happen in their church this year.  He went on full time salary.  His church grew to 85 people as the blessing of the Lord was on his ministry.  The church paid him a salary of $27,500.00.  Because he had properly designated a housing allowance and he also opted out of self employment taxes using the IRS form that allows him to keep his social security benefits, he got a refund this year of $6,300.00.  The best news is that he had no withholdings and yet still got a refund.

What About Pastor Jones?

Pastor Jones was just like Pastor Smith. He, too, did not have much experience with the business side of church.  He, too, was blessed in 2009 to go on full time salary making about $27,500.00.  The church properly designated a housing allowance and he also opted out of self employment tax using the exact same form as Pastor Smith.  While his ministry was blessed he did not get any refund on his tax return for 2009.  Why was his tax return different than Pastor Smith? 

Where Are the Two Pastors?

Both pastors are still enjoying the blessings of God on thier ministries.  Growth this year is happening on a steady basis and both pastors have reached 100 members.  Wow! Did you know that the average church in America never reaches 100 members?  So what is the difference between the two pastors today?  Pastor Smith is currently spending a 10 day vacation in Cancun, Mexico, with his wife while Pastor Jones and his beautiful and dedicated wife plan on spending their summer vacation at her parents' house, because it is all that their finances allow.

The Difference

In case you have not noticed, the difference between Pastor Smith and Pastor Jones is the way their churches reported their income.  You see, Pastor Smith and Pastor Jones qualifying housing allowance were $10,000 each.   Therefore, each man had taxable income of about $17,500.00.  However, Pastor Smith was issued a W-2 by his church while Pastor Jones was issued a 1099-Misc.  Little did each man know that the tax code treats their incomes differently based on how it is reported.  A little known tax code that influences the way the IRS looks at the Earned Income Tax Credit makes a big difference if the pastor's income is reported on a W-2 or a 1099-Misc. Because Pastor Smith church income was reported on a W-2, he got a refund of $6,300.00, but because Pastor Jones identical income was reported on a 1099-Misc, he got nothing.  It really makes a difference to know church compliance when it comes to tax laws. 

Here is the difference.  Pastor Smith church chose to get educated and properly report his income on a W-2.  Pastor Loser's church did not.  Many blessings to all pastors!  You deserve the best advice.  Please make it a goal this year to learn all you can about being the best steward ever over the treasure entrusted into your hands.  This story is to be continued!