Does your pastor receive fees directly from individuals or families for performing marriages, funerals, or baptism services? If so, are these fees for professional service considered taxable income to the minister?
The short answer is yes. This practice has probably been going on since ministers began performing these functions. Your church may even suggest an appropriate amount for the family to give the minister.
According to the IRS (Treasury Reg. Section 1.61-2(a) (1)), “marriage fees and other contributions received by a clergyman for services” are considered income for the minister. However, since the fees for these services are paid directly to the minister from the family, the income would be considered self-employment earnings and not employee wages. Thus, this income would need to be reported by the minister on Schedule C of their income tax filings. So the church is not required to account for or report this income to the minister.
However, if your church pays other staff for functions performed, such as coordinating weddings or funerals, leading music, operating sound/technical equipment, or doing custodial work, the church is responsible to report these earnings on a W-2, since these people would all be considered employees for income tax purposes. And remember, overtime rules apply for this work as well.
I find it best to remind our pastoral staff of this requirement to report any income received for professional services so they don’t get into trouble for underreporting their income.
As you’d expect, since I’m talking about taxes here, I must offer the following caveat: This post is provided by ECCU for educational purposes only. It is not intended to be legal, tax, or accounting advice. ECCU disclaims any liability arising out of your use of or any financial position taken in reliance on information provided in this post.