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Webinar: Rich Hammar’s 15 Must-Knows for Pastors

On-Demand Webinar: Attorney Richard R. Hammar identifies 15 topics that frequently trip up pastors and church administrators.


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Your training to serve as a pastor prepared you to write sermons and guide the spiritual life of a congregation. But what about the administrative side of ministry? Attorney and CPA Richard R. Hammar knows only too well that pastors struggle with budgeting, understanding housing allowances, or running a business meeting.

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In this one-hour Advantage Member webinar, Hammar shares 15 things that frequently trip up new and seasoned pastors. This webinar will provide awareness, education, and inspiration to help get pastors pointed in the right direction.

Take me back to “Rich’s 15 Must-Knows for Pastors” to choose an article of interest or that fits a particular need.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Top 3 Most Confusing Tax Issues for Clergy

Discover the top 3 confusing tax issues for clergy and practical tips to handle them effectively.

Last Reviewed: January 2, 2025

Ministers and church treasurers must understand the tax rules that apply to clergy. Unfortunately, seminary training rarely covers these unique tax laws, and church treasurers often lack the necessary knowledge. This gap in information can lead to mistakes in handling clergy income, paying taxes, and missing out on valuable tax benefits.

Clergy are eligible for five special tax rules regarding services performed in the exercise of their ministry:

  • Housing Allowance: A portion of church compensation designated as a housing allowance is exempt from federal income tax (limitations apply).
  • Parsonage Value: The annual rental value of a church-provided parsonage is exempt from federal income tax.
  • Exemption from Self-Employment Taxes: Ministers may qualify for exemption from self-employment taxes under specific conditions.
  • Self-Employment for Social Security: Ministers are generally considered self-employed for Social Security purposes (if not exempt).
  • Income Tax Withholding Exemption: Ministers’ wages are exempt from income tax withholding unless they opt for voluntary withholding.

To qualify for these benefits, you must meet the IRS’s definition of a “minister” and be engaged in the exercise of ministry. The IRS applies a five-factor test to determine this status. If you meet these requirements, the next step is understanding how to properly file taxes to claim the benefits available to you.

Top 3 Tax Issues for Clergy

1. Reporting Income Taxes: Employee or Self-Employed?

Ministers must determine whether to report income taxes as employees or self-employed individuals. Most new ministers should report as employees because:

  • Fringe benefits, like employer-paid health insurance premiums, are excludable.
  • The risk of an IRS audit is lower for employees.
  • Employees avoid additional taxes and penalties that can result from being reclassified by the IRS during an audit.

2. Social Security Taxes: Employee or Self-Employed?

Ministers are always treated as self-employed for Social Security purposes concerning their ministerial services, regardless of whether they report as employees for federal income tax. This dual tax status means:

  • Ministers pay the self-employment tax (15.3% of taxable earnings).
  • Churches must not withhold Social Security and Medicare taxes (FICA taxes).
  • Some churches help by paying half or all of the minister’s self-employment tax, but these payments must be reported as taxable income.

3. Paying Taxes: Quarterly Payments and Estimated Taxes

The federal income tax is a “pay as you go” system. Ministers must prepay their income and self-employment taxes using estimated tax payments. Here’s how:

Steps for Paying Estimated Taxes

  1. Obtain IRS Form 1040-ES: Get this form before April 15 of the current year.
  2. Compute Estimated Taxes: Calculate your estimated tax by considering adjusted gross income, deductions, and credits. Include housing allowance exclusions and self-employment taxes.
  3. Pay Quarterly Installments: Make one-fourth of your total estimated tax payments by the following deadlines:
    • April 15: For income earned January 1–March 31
    • June 15: For income earned April 1–May 31
    • September 15: For income earned June 1–August 31
    • January 15: For income earned September 1–December 31
  4. Adjust Quarterly Payments: Recalculate if your income, deductions, or credits change during the year.

Handling Overpayments and Underpayments

  • Overpayment: Apply overpaid taxes to the following year or request a refund.
  • Underpayment: Avoid penalties by using IRS Form 2210 to calculate and pay any owed penalties.

FAQs About Clergy Taxes

Can clergy opt out of Social Security? Yes, but only on religious grounds by filing IRS Form 4361. This decision is permanent unless Congress changes the law. What happens if a church withholds FICA taxes for a minister? This is incorrect. Ministers are always self-employed for Social Security regarding ministerial services. Do ministers need to pay quarterly estimated taxes? Yes, if their estimated tax liability exceeds $1,000 and withholding does not cover their total tax owed. What is the housing allowance exclusion? It allows ministers to exclude a portion of their income used for housing expenses from federal income tax, subject to limits.

Conclusion

Clergy face unique tax challenges, but understanding key issues like employment status, Social Security obligations, and estimated taxes can help ministers and church treasurers navigate these complexities. By staying informed and following IRS guidelines, ministers can ensure compliance and maximize their tax benefits.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Rich’s 15 Must-Knows for Pastors: Governing Documents

Understand the importance of church constitution and bylaws.

A church’s governing documents include a corporate charter and a constitution or bylaws (sometimes both). The lead minister should be familiar with these documents and be able to identify the current version. There are several aspects of governing documents ministers should understand, including the following.

Bylaw basics: What are church bylaws?

The Model Nonprofit Corporations Act (3rd ed. 2008), which has been adopted by several states, defines bylaws as “the code or codes of rules (other than the articles of incorporation) adopted for the regulation and governance of the internal affairs of the nonprofit corporation, regardless of the name or names used to refer to those rules.”

One court defined bylaws as follows:

The bylaws of a corporation are the rules of law for its government. The term “bylaw” may be further defined according to its function, which is to prescribe the rights and duties of the members with reference to the internal government of the corporation, the management of its affairs, and the rights and duties existing among the members. Bylaws are self-imposed rules, resulting from an agreement or contract between the corporation and its members to conduct the corporate business in a particular way. Until repealed, bylaws are the continuing rule for the government of the corporation and its officers. Schraft v. Leis, 686 P.2d 865 (Kan. 1984).

Know your current version of your bylaws

In many churches, the bylaws were adopted long ago, and have been amended numerous times over the years. As a result, there may be various “editions” in circulation. Often, these editions are undated, making it difficult (if not impossible) to identify the current one. This can create confusion.

Going forward, here are two ways to prevent confusion over which set of bylaws is the current edition:

  • Identify copies of the church bylaws with a numeric designation. To illustrate, a church identifies its current bylaws as “version 1.0.” During the church’s membership meeting, two amendments are made to the bylaws. Following the meeting, the revised bylaws are printed, and designated as “version 1.1.”
  • Identify copies of the church bylaws by date. For example, designate the current bylaws “Current as of [date].”

In either case, be sure that all printed copies of the bylaws bear the appropriate designation, and dispose of undesignated versions.

Do churches need both a constitution and bylaws?

Some churches have both a constitution and bylaws. This was a common practice a century ago, and it persists to this day. But there is little justification for a church to have both a constitution and bylaws unless the constitution is made superior to the bylaws either by express provision or by a more restrictive amendment procedure.

To illustrate, some churches have:

(1) a constitution that can only be amended by providing members with advance notice of the proposed amendment prior to a membership meeting, and by a two-thirds vote of the membership at the meeting; and

(2) bylaws that can be amended at a membership meeting, without prior notice to the members, and by a simple majority vote. The church places provisions of greatest importance in the constitution, such as church doctrine and the purchase or sale of church assets, since these can be changed only through a more deliberative process involving advance notice and a super-majority vote. Routine provisions are assigned to the bylaws.

Churches that have both a constitution and bylaws typically address many of the same issues in both documents. Over time, this often leads to conflicts, since amendments in one document may not be made to similar provisions in the other.

Identifying a single body of rules as the “constitution and bylaws” without any attempt to distinguish between the two is a common but inappropriate practice.

Provisions you may want to include in your bylaws

There are a number of potentially helpful provisions that are often omitted from church bylaws, including:

  • An arbitration or mediation provision requiring specified disputes to be resolved through mediation or binding arbitration.
  • Choice of parliamentary law to govern membership meetings. Many church leaders assume that Robert’s Rules of Order Newly Revised governs church business meetings. But this is not the case. There are dozens of competing models of parliamentary procedure, and a church should formally select the model that will be applied. If your church intends to use Robert’s Rules of Order Newly Revised, then your bylaws should say so.
  • If your church bylaws contain a provision addressing the discipline of members who violate your standards of membership, they should clarify that members who have been charged with conduct in violation of the standards of membership waive their right to resign from membership in the church. Without such a provision, members can preempt a church’s disciplinary procedure by simply informing their pastor that they are resigning as members. Guinn v. Church of Christ, 775 P.2d 766 (Okla. 1989).
  • A clause specifying how contracts and other legal documents are to be approved.
  • State who has the authority to sign church checks. It is a basic tenet of internal control that two persons sign checks, and a church’s bylaws should specify which two officers have this authority.
  • “Bonding” of officers and employees who handle church funds.
  • An annual audit by independent certified public accountants (CPAs). There are compelling reasons why a church should consider having an annual audit. Most importantly, an audit promotes an environment of accountability in which opportunities for embezzlement (and therefore the risk of embezzlement) are reduced. And, the CPAs who conduct the audit will provide the church leadership with a “management letter” that points out weaknesses and inefficiencies in the church’s accounting and financial procedures. This information can be invaluable to church leaders. Smaller churches that cannot afford a full audit may want to consider two other options: (1) Hire a CPA to conduct a review, which is a simpler and less expensive procedure. If the review detects irregularities, a full audit may be considered worth the price. (2) Create an internal audit committee if there are accountants or business leaders within the church who have the ability to review accounting procedures and practices and look for weaknesses. These people often are very familiar with sound internal control policies, and will quickly correct weaknesses in the church’s financial operations.
  • An indemnification clause providing for the indemnification of officers and directors who are sued as a result of actions or decisions made in the course of performing their duties on behalf of the church.
  • Specification of the church’s fiscal year.
  • “Staggered voting” of directors (a portion of the board is elected each year to ensure year-to-year continuity of leadership).
  • The bylaws should specify if the church board can act without conducting a formal meeting. To illustrate, section 8.21 of the Model Nonprofit Corporation Bylaws, which has been adopted by several states, specifies that “except to the extent that the articles of incorporation or bylaws require that action by the board of directors be taken at a meeting, action required or permitted to be taken by the board of directors may be taken without a meeting if each director signs a consent in the form of a record describing the action to be taken and delivers it to the nonprofit corporation. . . . A consent signed under this section has the effect of action taken at a meeting of the board of directors and may be described as such in any document.”
  • The bylaws should authorize the church board to conduct meetings by telephone or a video conference, or allow the “attendance” of an otherwise absent director through telephone connection or video conference, if desired.
  • The bylaws should specify if absentee voting is permitted at membership meetings. Absentee voting is not ordinarily permitted unless expressly authorized by an organization’s bylaws. Robert’s Rules of Order Newly Revised specifies: “It is a fundamental principle of parliamentary law that the right to vote is limited to the members of an organization who are actually present at the time the vote is taken in a legal meeting. Exceptions to this rule must be expressly stated in the bylaws. . . . An organization should never adopt a bylaw permitting a question to be decided by a voting procedure in which the votes of persons who attend a meeting are counted together with ballots mailed in by absentees, since in practice such a procedure is likely to be unfair.”
  • The bylaws should specify if proxy voting is permitted at membership meetings.
  • State who is authorized to have custody of the minutes of church membership and board meetings.
  • State who is authorized to have custody of the church’s financial records. These documents are church records, and ordinarily should not be entrusted to the treasurer’s personal possession.
  • Most state nonprofit corporation laws give members a right to inspect specified corporate records at a proper time and for a proper purpose. Usually, these laws provide that this authority to inspect corporate records exists unless limited or abolished by the corporate bylaws. To illustrate, the Revised Model Nonprofit Corporation Act, which has been enacted by several states, gives a member a right to inspect the minutes of board meetings if the member’s demand is made in good faith and for a proper purpose; the member describes with “reasonable particularity” the purpose and the records the member desires to inspect; and the records are directly connected with this purpose. The Act specifies that a church’s articles of incorporation or bylaws “may limit or abolish the right of a member under this section to inspect and copy any corporate record.”
  • Clarify the meaning of all voting requirements specified in the bylaws. For example, a church’s bylaws may call for a “two-thirds vote” for certain actions. This can have various meanings, including a vote that is precisely two-thirds of the membership; at least two-thirds of the total voting membership, regardless of how many come to a business meeting; or, at least two-thirds of the members present at a duly called meeting at which a quorum is present. This kind of ambiguity has caused countless internal church disputes.
  • Suspension or removal of board members who miss a specified number of board meetings. Board members owe various “fiduciary duties” to their church, and one of these is the duty to exercise “due care” in the performance of their responsibilities. Board members who miss most board meetings eventually will be in violation of this duty, and some churches have chosen to address this issue in their bylaws with a provision calling for the suspension or removal of such persons. The fiduciary duty of due care goes to the very heart of the status of a board member.
  • It is common for church board members to resign their position when they relocate or become incapacitated. However, church bylaws usually do not address when and how such resignations will occur. This is an important and frequently overlooked issue, since board members generally remain liable for the actions of the board until their resignation is effective. If the timing of a resignation is ambiguous, then this can create lingering exposure to liability. To avoid this, a church’s bylaws should clarify precisely how and when a board member’s resignation will be effective.

Seek legal assistance. The drafting of church bylaws is a complex task that should not be attempted without the assistance of an attorney. Knowing what to include and exclude from your bylaws are important tasks that require legal knowledge and experience.

Is it time to rewrite our bylaws?

Do church bylaws ever need to be rewritten? That depends on several factors, including the following:

  • How old are the bylaws? The older they are, the more likely they are in need of a legal review, and possibly revisions or a new and updated document.
  • Who drafted the bylaws? If the bylaws were drafted by one or more attorneys with experience in corporate governance, ideally involving churches or other nonprofit organization, there is less need to rewrite the bylaws. On the other hand, many churches have bylaws that were drafted by a committee of laypersons with little if any specialized knowledge in corporate governance. In such a case, there may be a greater need for revisions or a new document.
  • Some church bylaws are mandated by the denomination with which they are affiliated, and the church has little if any authority to make changes. Church leaders should be familiar with any such limitations.

The application of denominational governing documents

In many denominations, affiliated churches are limited in their ability to compose or revise their bylaws. In some cases, the church’s bylaws are entirely prescribed by the denomination’s governing documents. In others, the church is free to compose its own bylaws, but must include terms mandated by the denomination’s governing document. As one court noted, “For religious nonprofit corporations, bylaws may partly be prescribed by, and may be an important tie to, a related superior or affiliated religious organization.” New v. Kroeger, 84 Cal.Rptr.3d 464 (Cal. App. 2008).

Church charters

The application for incorporation that is filed with the secretary of state generally is called the articles of incorporation or articles of agreement. This document, when approved and certified by the appropriate government official, is commonly referred to as the corporate charter.

Church charters typically set forth the following information:

  • corporate name
  • corporate address
  • period of duration
  • purposes of the corporation
  • names and addresses of incorporators and directors

Additional Reading

For deeper readings on bylaws, charters, and other areas related to governing a church, see the following:

Take me back to “Rich’s 15 Must-Knows for Pastors” to choose an article of interest or that fits a particular need.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Rich’s 15 Must-Knows for Pastors: Parliamentary Procedure

Learn the basics of running church meetings.

Ministers are not expected to be experts in parliamentary procedure, but familiarity with five common and recurring issues can help clear up confusion as they seek to conduct meetings in a proper and orderly way.

Which parliamentary authority applies to meetings of our board and membership?

Robert’s Rules of Order Newly Revised, or any other body of parliamentary procedure, is not applicable unless specifically adopted.

Churches can and should select a specific body of parliamentary procedure by an appropriate clause in the church’s governing document. If a particular system of parliamentary procedure has been used by common consent long enough to constitute a church practice or custom, then it probably would be considered as binding as if specifically adopted by a provision in the church’s governing document.

If no body of parliamentary procedure has been adopted, either by reference in a church’s governing document or by custom, then the ordinary or “common law” rules of parliamentary law should be observed in the conduct of a meeting.

Churches should not assume that Robert’s Rules of Order Newly Revised is the only parliamentary authority. It is not. On the contrary, there are alternative systems of parliamentary procedure, some of which are excellent (and some would say superior).

Caution. Many churches adopted the original Robert’s Rules of Order, or one of the early revisions. The original text was published in 1876, and it has been revised ten times. The current (12th) edition was released in 2020. Obviously, churches that select “Robert’s Rules” should be sure to identify this system of parliamentary procedure as “the most recent revision of Robert’s Rules of Order.” Otherwise, they may have to resort to obsolete rules to resolve parliamentary questions.

Can a church’s bylaws be “suspended”?

Can church members vote to “suspend” the church bylaws during a membership meeting? Consider the following scenario. A church’s bylaws state that board members serve a maximum of six years in office. The church is in the midst of a construction project, and a board member is a contractor who has provided invaluable assistance to the church during this project. Several church members want this person to remain on the board following the expiration of his term of office. A member made a motion at an annual church business meeting to “suspend the bylaws” to allow this to happen. Can church members, at a duly called business meeting, take action to suspend the bylaws?

In most cases, the answer is no. Consider the following ten points.

1. State nonprofit corporation laws under which many churches are incorporated generally make no provision for the suspension of bylaws.

2. Suspension of bylaws is an extraordinary action that is not found in most church bylaws, but it is important to confirm that this is the case.

3. If your church bylaws allow for their own suspension, then be sure to comply with any procedural requirements. For example, the bylaws of some public charities and for-profit corporations provide for their own suspension, but they typically require a supermajority vote, such as two-thirds or three-fourths of the members present.

4. Many churches have adopted the current version of Robert’s Rules of Order as their official body of parliamentary procedure governing church business meetings. Section 25 of Robert’s Rules of Order Newly Revised states:

Rules contained in the bylaws (or constitution) cannot be suspended no matter how large the vote in favor of doing so or how inconvenient the rule in question may be unless the particular rule specifically provides for its own suspension, or unless the rule properly is in the nature of a [procedural] rule of order.

For churches that have not formally adopted any body of parliamentary procedure, Robert’s Rules of Order Newly Revised is persuasive authority. Section 2 of Robert’s Rules of Order Newly Revised states:

Although it is unwise for an assembly or a society to attempt to function without formally adopted rules of order, a recognized parliamentary manual may be cited under such conditions as persuasive.

5. Some corporations have amended their bylaws to remove a provision authorizing their suspension. One common reason for doing so is that a provision authorizing bylaw suspension is antidemocratic. That is, the bylaws are adopted by the corporate membership following an intensive period of drafting and consideration. Permitting this fundamental legal document, or a provision therein, to be suspended by a specified percentage of members present at an annual or specially called meeting of the members typically will result in a relatively small minority of the total membership dictating a suspension of the bylaws.

6. Churches that choose to provide for the suspension of their bylaws can limit potential problems by requiring a supermajority vote and by limiting the suspension option to specific bylaw articles or sections.

7. In a famous case, Supreme Court Justice Oliver Wendell Holmes noted that “hard cases make bad law.” The point being that bad precedents often result from difficult circumstances. Churches that feel compelled to suspend their bylaws, even when legally authorized, may end up regretting doing so. At a minimum, they will be establishing a precedent that may be referenced on many future occasions whenever an emergency arises. The very concept of corporate bylaws being subject to suspension is at odds with the fundamental nature of bylaws as a set of rules governing corporate practice and administration. In one sense, the bylaws are the one document that protects a church against anarchy. Any compromise to the stability of a church’s bylaws raises the potential for future problems.

8. Proper drafting of bylaws often can avoid the clamor for their suspension that may arise out of temporary emergencies. Church leaders should periodically have their bylaws reviewed by legal counsel.

9. Suspending the bylaws, when not authorized, will result in a “cloud” over the integrity and legitimacy of whatever action is taken while the bylaws are suspended.

10. Bylaw amendment should be viewed as an alternative to bylaw suspension. Bylaws typically provide for their own amendment. In many cases, bylaw amendments take effect immediately.

Improper and dilatory motions

A number of parliamentary rules are designed to facilitate the efficient consideration of business. Two of these rules are the prohibitions against improper and dilatory motions. These rules limit the ability of church members to hijack church business meetings with bizarre and irrelevant motions.

Improper motions

Robert’s Rules of Order Newly Revised lists the following examples of improper motions:

  • Motions that conflict with the corporate charter, constitution, or bylaws.
  • Motions that conflict with procedural rules prescribed by national, state, or local laws.
  • In some cases, motions that conflict with a previously adopted motion that has not been rescinded, or considered and rejected.
  • Motions presenting practically the same question as one that is still under consideration.
  • Motions that are outside the objective of the organization as specified in its governing documents.

Dilatory motions

Robert’s Rules of Order Newly Revised defines a dilatory motion as one that “seeks to obstruct or thwart the will of the assembly.” It is the duty of the chair to rule that such motions are out of order as dilatory.

Section 10 of Robert’s Rules describes another kind of improper dilatory motion:

Motions to reaffirm a position previously taken by adopting a motion or resolution are not in order. Such a motion serves no useful purpose because the original motion is still in effect; also . . . if a motion to reaffirm failed, it would create an ambiguous situation.

What is meant by receiving, accepting, or adopting a report?

It is common for motions to be offered at church board and membership meetings to “accept,” “receive,” or “adopt” a report. For example, after the church treasurer makes a report to the church board at a monthly meeting, a board member moves that the report be “received.” Is this an appropriate motion, or would some other motion be more appropriate? Consider the following explanations.

“Receiving” a report

A report of an officer or committee is “received” by a board or assembly when it is presented or read. In other words, the person making the report presents it, while the listeners receive it. As a result, it is incorrect parliamentary practice for a motion to be made at a board or membership meeting to “receive” a report after it is presented, since the act of presenting it constitutes reception by the hearers.

Example. A church treasurer makes a report of the church’s finances at a monthly meeting of the church board. Following the presentation of the report, and the treasurer’s response to questions and requests for clarification, a board member moves “to receive the treasurer’s report with appreciation.” This motion is nonsensical, since the treasurer’s report was received when it was read.

Adopting or accepting a report

Robert’s Rules of Order Newly Revised states that motions to adopt or accept the report of an officer or committee are synonymous, and signify that the entire report becomes “the act or statement of the assembly.” Such motions are common in church board and membership meetings.

To illustrate, it is common for motions to be made and passed to accept a treasurer’s report or the minutes of the previous meeting. It is important to understand, however, that such motions have the effect of “the assembly’s endorsing every word of the report, including the indicated facts and reasoning, as its own statement.” This may not be a problem in some, or even most, cases. For example, a board may want to formally adopt the minutes of each meeting, since they reflect the actions of the board itself. But, there can be situations in which it would be more appropriate for a board or assembly to merely receive a report (by having it presented).

Some reports of officers or committees contain one or more recommendations for action. In such cases, it is appropriate and necessary for a motion to adopt the recommendation. Usually, such a motion is made by the person presenting the report.

No action

Many reports made by officers and committees to a board or assembly are for informational purposes and contain no recommendations or motions. For example, at a regularly scheduled meeting of a church board, a committee member reads a report that contains no proposed actions. It would be appropriate for the chairperson to thank the committee and request that the report be placed on file, and then move to the next item of business. A motion to accept or adopt the report is not necessary, since it is informational.

In this regard, Robert’s Rules of Order Newly Revised states: “Apart from filing such a report . . . no action on it is necessary and usually none should be taken.”

In some organizations, the treasurer’s periodic reports to the board of directors are not accepted or adopted (so long as they contain no specific recommendations for action). Instead, the chairperson requests the secretary to file these reports without action. At the end of the fiscal year the board adopts a motion to accept the report of the CPA firm that audits the organization’s books. This has the effect of relieving the treasurer of any personal culpability for his or her reports (excepting fraudulent or illegal activity). It also may minimize the board’s culpability that might otherwise exist if it adopted or accepted each report of its treasurer. The organization itself, at its annual business meeting, also adopts or accepts by motion the CPA’s audit report.

Special rules for small meetings

Robert’s Rules of Order Newly Revised permits certain parliamentary rules to be relaxed in “small boards and committees,” which it defines as those “consisting of not more than about a dozen members.” The reason for less formality in small boards and committees is to facilitate the conduct of business. Note that larger boards and committees (those with more than about a dozen members), are subject to the same parliamentary rules as a large deliberative assembly.

Here are the parliamentary rules that are relaxed in small boards and committees, according to Robert’s Rules of Order Newly Revised:

  • Members are not required to obtain the floor before making motions or speaking, which they can do while seated.
  • Motions need not be seconded.
  • There is no limit to the number of times a member can speak to a question, and motions to close or limit debate generally should not be entertained.
  • Informal discussion of a subject is permitted while no motion is pending.
  • Sometimes, when a proposal is perfectly clear to all present, a vote can be taken without a motion having been introduced. Unless agreed to by unanimous consent, however, all proposed actions of a board must be approved by vote under the same rules as in other assemblies, except that a vote can be taken initially by a show of hands, which is often a better method in such meetings.
  • The chairperson need not rise while putting questions to vote.
  • The chairperson can speak in discussion without rising or leaving the chair, and, subject to rule or custom within the particular board (which should be uniformly followed regardless of how many members are present), he or she usually can make motions and usually votes on all questions.

Additional reading

Take me back to “Rich’s 15 Must-Knows for Pastors” to choose an article of interest or that fits a particular need.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Rich’s 15 Must-Knows for Pastors: Church Insurance

Determine if your church has the right insurance.

There are few areas more important for a minister to master than those dealing with insurance coverages and exclusions. Consider the following.

What kinds of insurance should your church have?

Some insurance is essential, and should be obtained by every church. Other kinds of insurance coverage are desirable, meaning that they are not absolutely necessary but may be highly desirable depending upon a church’s circumstances. Most church leaders would consider property and liability insurance to be essential. Other forms of insurance should be regarded as essential depending on the circumstances. These include:

Property Insurance Coverage

Covers many major risks to church property, including fire, smoke, lightning, hurricane, and tornado.

Action points

  • Check to see if unique items such as stained glass windows, pipe organs, handbells, artwork, and sound equipment require special endorsements.
  • Obtain appraisals of unique items to be sure they are adequately insured.
  • Conduct periodic inventories of property to prove claims in the event of loss or destruction.
  • Check to see if coverage is limited to the market value of damaged or destroyed property. If so, consider obtaining replacement cost coverage.
  • Check on coverage for items of personal property owned by members or employees. Examples include expensive coats left in a coat room and an employee’s personal laptop computer.
  • Check to see if boilers require a special endorsement.
  • Check the exclusions under the policy. Some risks, such as earthquakes, mold, and sewer or drain backup, may be excluded and require special endorsements.
  • If your church is located in one of 22,000 communities that participate in the National Flood Insurance Program (NFIP), you can obtain flood insurance from insurers that participate in the NFIP. Coverage amounts are often inadequate.
  • Check to see if your policy contains a coinsurance clause. If so, you are required to insure your property for a specified percentage of its replacement value. If you don’t, you become a coinsurer, meaning that your policy will pay less than the stated limits in the event of a partial loss. These clauses make it essential for churches to have adequate coverage. This review should be done annually.

Liability Insurance Coverage

Covers many forms of personal injury and damage to the property of others. Common examples includes slips and falls, sexual misconduct (coverage may be limited to the church, and exclude the offender).

Action points

  • Check to see if sexual misconduct coverage is limited, and if higher amounts can be obtained by complying with specified procedures.
  • Check to see if liability insurance is provided on an “occurrence” or “claims made” basis.
  • Some policies provide minimal medical benefits to persons injured on church property. Additional coverage should be considered.

Church-owned Vehicles Insurance Coverage

Covers injuries and damages resulting from the use of church-owned vehicles.

Action point

  • Check to see if your property or general liability policy contains coverage for church-owned vehicles. If not, obtain a separate endorsement for this coverage.

Non-owned Vehicles Insurance Coverage

Covers injuries and damages caused by members who use their own vehicle while performing services for their church. The driver’s personal car insurance is also available, but if inadequate, the church will likely be sued. This coverage often must be obtained as a separate endorsement. Essential for churches that allow members or employees to drive personal vehicles on church business.

Action point

  • Check to see if non-owned vehicle coverage applies to rented vehicles.

Counseling Insurance Coverage

Covers injuries caused during counseling activities. Often must be obtained as a separate endorsement. Essential for churches that provide counseling services.

Action point

  • Check exclusions carefully. For example, some policies exclude sexual misconduct.

Employment Practices Insurance Coverage

Covers certain employment-related claims such as wrongful dismissal and some forms of discrimination. These are among the most common types of church litigation today. Many church leaders erroneously assume that their general liability policy covers these claims. In most cases it does not.

Action point

  • If your church has employees, you should consider this coverage. The more employees you have, the more essential this becomes.

For other important considerations, see “What You Need in an Employment Practices Liability Insurance (ELPI) Plan.”

Directors and Officers (D&O) Insurance Coverage

Covers several potential legal claims that can be brought against officers and directors directly. D&O policies also may cover claims not covered by general liability policies. While uncompensated directors of nonprofit organizations have “limited immunity” from personal liability under both state and federal law, this protection does not cover compensated directors and does not cover acts of “gross negligence.” Must be obtained as a separate endorsement or policy.

Action point

  • If your church lets children ride in fully-loaded 15-passenger vans, does not screen youth workers, or engages in other high-risk activities that may be deemed “grossly negligent,” then you need to purchase this coverage.

Theft Insurance Coverage

Covers embezzlement and other misappropriations of church funds and securities by employees and others having access to money or property. Often must be obtained as a separate endorsement. This form of insurance is also referred to as bonding.

Action point

  • Remember, the opportunity to steal, rather than a need for money, is often the primary reason for employee theft. Institute procedures to minimize unsupervised access to funds.

Foreign Travel Insurance Coverage

Provides medical benefits for injuries occurring during foreign travel. Costs of a medical evacuation may also be covered. Often must be obtained as a separate endorsement or policy.

Action points

  • Check to see if your general liability policy excludes any injuries or damages occurring outside of the US (most general liability polices do exclude such coverage).
  • Make sure your church is covered if it sends groups on mission trips to foreign countries.

Umbrella Insurance Coverage

Covers legal judgments in excess of the limits on other insurance policies.

Action point

  • Does your church have substantial assets to be protected, or inadequate liability insurance? If so, you need to purchase umbrella coverage to protect against catastrophic damages.

Workers’ Compensation Insurance Coverage

Workers’ compensation insurance provides benefits to employees who are injured or become ill in the course of (or because of) their employment. Many church leaders erroneously assume that churches are not covered by state workers’ compensation laws. In most cases, this assumption is incorrect and exposes a church to a substantial uninsured risk.

Action point

  • Check to see if churches are subject to workers’ compensation law in your state. If so, obtain insurance to cover potential claims.

What amounts of coverage should your church have?

Church leaders often ask, “How much insurance should we purchase?” Unfortunately, there is no simple answer to this question. Here are a few points that may help:

  • In general, the amount of coverage should be based on two primary considerations: (1) the nature and frequency of your activities, and (2) the net value of the church’s assets. To illustrate, if your church has a youth program that has frequent meetings involving several minors, or your church provides counseling, or hosts community activities, then your liability risks are increased and you should be looking for higher insurance limits. Further, as a general rule, liability insurance should have limits in excess of the net value of the church’s assets, so that the assets are protected in the event of litigation.
  • Annually review all church insurance coverages to be sure they are adequate.
  • Periodically obtain appraisals of church property (real property, personal property, and fixtures) to be sure that you have adequate coverage.
  • Be sure that your church is insured for an amount in excess of what is required by a coinsurance clause in your insurance policy. A coinsurance clause is often difficult to understand, but the idea is this: unless a church is insured for a specified amount (e.g., 80 percent of market value) then the church becomes a “coinsurer” in the event of a partial loss, and is responsible for paying part of that loss. This is done by a reduction in the amount that the insurer has to pay. The purpose of such clauses is to persuade property owners to insure their property for an amount equal to or approaching its market value. Over time, a church’s failure to increase the amount of its property insurance to reflect the current value of the church property will reduce the insured amount to less than the coinsurance amount, and this can result in an unpleasant and unbudgeted expense when the insurer only pays a portion of a substantial partial loss.

What are exclusions?

An exclusion is a loss that is not covered under an insurance policy. In some cases, excluded losses can be covered by a separate endorsement or “rider” by paying an additional premium. Church leaders should be familiar with exclusions under the church’s insurance policies, and obtain all desired endorsements.

For example, commercial general liability (CGL) insurance policies generally exclude intentional or criminal acts from coverage. Some policies specifically exclude coverage for sexual offenses. Insurers often assert such exclusions in cases of sexual molestation of minors by church employees and volunteers, since such acts are both intentional and criminal. But churches typically respond to such coverage denials by asserting that the exclusion does not apply since they were not guilty of intentional or criminal acts. Rather, they ordinarily are being sued on the basis of negligence. The courts have come to different conclusions in such disputes. This illustrates the importance of church leaders being familiar with the terms of their church’s CGL policy, and providing for sexual misconduct coverage as a separate policy or endorsement if necessary.

Most CGL policies exclude employment practices. As a result, churches that are sued for an employment-related claim may be denied coverage and the insurer will provide neither a legal defense nor indemnification. The most common employment-related claims involving churches include wrongful termination and various discrimination claims under state and federal law.

The duty to notify

Church insurance policies impose upon the church a duty to promptly notify the insurer of any potential claims when the injury or loss occurs, and not when a lawsuit is filed. This gives the insurance company sufficient time to investigate the incident and provide a defense. Notice is a condition of coverage and a church that fails to promptly notify its insurer of a potential claim may be denied coverage.

When faced with a “no coverage” letter due to failure to promptly notify, a church may argue that its delayed notification was not sufficiently long to violate the prompt notice requirement, or that its delay did not result in prejudice to the insurer. If it can be established that the insurer was not materially prejudiced by the insured’s delayed notice, the delay may not be fatal to the insurer’s obligations to defend and indemnify.

Additional reading

For deeper readings on church insurance and liability, see the following:

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Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Rich’s 15 Must-Knows for Pastors: Child Abuse Reporting

Learn what it means to be a mandatory reporter and state-by-state reporting requirements.

Every state has a child abuse reporting law that requires persons designated as “mandatory reporters” to report known or reasonably suspected incidents of child abuse. It is imperative for ministers to be able to answer the following questions.

What is the definition of reportable “child abuse”?

All 50 states have enacted child abuse reporting statutes in an effort to protect abused children and prevent future abuse. Child abuse is defined by most statutes to include physical abuse, emotional abuse, neglect, and sexual molestation. A child ordinarily is defined as any person under the age of 18 years.

Some states specifically limit the definition of “child abuse” to abuse inflicted by a parent, caretaker, or custodian. Such a statute, if interpreted narrowly, might not require ministers and lay church workers who are mandatory reporters of child abuse under state law to report incidents of abuse inflicted by custodians, associate ministers, adolescents, or volunteer youth workers.

Am I a mandatory reporter of child abuse?

All 50 states enumerate categories of persons who are under a legal duty to report abuse to designated civil authorities. In most states, such “mandatory reporters” must report both actual and reasonably suspected cases of child abuse. Failure to do so is a crime (usually a misdemeanor).

Some states define mandatory reporters to include any person having a reasonable belief that child abuse has occurred. Obviously, ministers will be mandatory reporters under these statutes. The remaining states define mandatory reporters by referring to a list of occupations which generally includes physicians, dentists, hospital employees, nurses, coroners, school employees, nursery school workers, law enforcement officers, and licensed psychologists. Ministers are specifically identified as mandatory reporters under many of these statutes. But even if they are not, they may be mandatory reporters if they fall within a listed classification, such as school or child care workers, school administrators, or counselors. In summary, many ministers have a mandatory duty to report child abuse. Ministers should not assume that they have no duty to report.

Ministers who are not mandatory reporters under their state’s law generally are considered “permissive reporters,” meaning that they may report cases of abuse to the designated civil authorities but are not legally required to do so.

What if I learn of child abuse in the course of a conversation that is protected by the clergy-penitent privilege? Am I still required to report?

Ministers who are mandatory reporters of child abuse under state law are under a profound ethical dilemma when they receive information about child abuse in the course of a confidential counseling session that is subject to the clergy-penitent privilege. They have to choose between fulfilling their legal obligation to report or honoring their ecclesiastical duty to maintain the confidentiality of privileged communications.

A number of states have attempted to resolve this dilemma by specifically exempting ministers from the duty to report child abuse if the abuse is disclosed in the course of a communication protected by the clergy-penitent privilege. Other states, while not specifically excluding ministers from the duty to report, provide that information protected by the clergy-penitent privilege is not admissible in any legal proceeding regarding the alleged abuse. Some state child abuse reporting statutes do not list the clergy-penitent privilege among those privileges that are abolished in the context of child abuse proceedings. The intent of such statutes may be to excuse ministers from testifying in such cases regarding information they learned in the course of a privileged communication.

Even if the clergy-penitent privilege applies in the context of child abuse reporting, it is by no means clear that the privilege will be a defense to a failure to report, since (1) the information causing a minister to suspect that abuse has occurred may not have been privileged (that is, it was not obtained in confidence, or it was not obtained during spiritual counseling); and (2) a privilege ordinarily applies only to courtroom testimony or depositions, and not to a statutory requirement to report to a state agency.

Unfortunately, the failure by many states to recognize the clergy-penitent privilege in the context of child abuse reporting disregards the therapeutic purpose of the privilege. Many child abusers will be discouraged from seeking spiritual counsel if the privilege does not assure the confidentiality of their communications. This will only compound the problem. If, on the other hand, the privilege were preserved, many child abusers would seek out ministers for spiritual counseling, and the underlying causes of such behavior could be isolated and in some cases corrected.

Caution. Several states have enacted laws allowing child abuse victims to sue mandatory reporters who failed to report known or reasonably suspected incidents of abuse to the authorities. Such laws expose ministers and churches to potentially significant monetary damages. As a result, ministers should seek legal counsel before choosing not to report known or suspected incidents of abuse.

How do I report child abuse?

Persons who are legally required to report child abuse generally make their report by notifying a designated state agency by telephone and confirming the telephone call with a written report within a prescribed period of time. The reporter generally is required to (1) identify the child, the child’s parents or guardians, and the alleged abuser by name, and provide their addresses; (2) give the child’s age; and (3) describe the nature of the abuse. Most states have toll-free numbers that receive initial reports of child abuse.

Key point. Be aggressive in reporting child abuse. This means that consideration should be given to the following points (with input from legal counsel):

1. Resolve all doubts in favor of reporting.
2. Report even if you are a permissive rather than a mandatory reporter.
3. Report even if you are not certain the alleged abuse occurred (all that is required is reasonable cause).
4. Report even if information concerning abuse was obtained in a communication protected by the clergy-penitent privilege.
5. Report regardless of the status and reputation of the accused offender.

Such steps not only will protect ministers and churches from potentially substantial monetary damages in civil lawsuits, but more importantly, may reduce the risk of future incidents of abuse by placing the alleged offender in the criminal justice system thereby making it more likely that future searches of his background will reveal prior incidents of abuse.

What steps should clergy take after receiving an allegation of child abuse?

Clergy who learn of allegations of child abuse should consult with a local attorney and address the following questions:

  • Am I a mandatory or a permissive reporter under state law?
  • If the allegations are true, do they constitute child abuse as defined under state law? Remember, in some states the definition of child abuse is limited to abuse inflicted by a parent or person responsible for a child’s care.
  • Do I have reasonable cause to believe that abuse has occurred? Be sure to interpret this broadly. An alleged offender’s denial of any wrongdoing does not preclude reasonable cause. Remember, offenders typically deny any wrongdoing.
  • Did I receive the information in the course of spiritual counseling? If so, does the clergy-penitent privilege protect me from disclosing this information? In a few states, it does. But this is often a difficult legal issue that should not be made without legal counsel.
  • Do I (or my church) have any risk of civil liability under state law if I choose not to report the abuse? It is possible that abuse victims will be permitted to sue clergy who fail to report (even if they are not mandatory reporters) if their injuries are aggravated and perpetuated because of the failure to report.
  • Can child abuse be reported to law enforcement officials in my state? Some states permit this. If you are in such a state, and you have a law enforcement officer in your congregation, consider reporting to that person.

Additional reading


Reducing the Risk: A Child Sexual Abuse Awareness Program
Child Sexual Abuse Response Plan
Church Board Guide to a Child Sexual Abuse Prevention Policy
Sex Offenders in the Church
Pastor, Church & Law

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Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Rich’s 15 Must-Knows for Pastors: Incorporation

Learn the fundamentals of incorporating a church and how it affects church governance.

What is incorporation?

Incorporation is how an organization is recognized by the state as a legal entity.

Two forms of church corporations are in widespread use in the United States:

  • Membership corporations, which are composed of and controlled by church members. This is the most common form of incorporation.
  • Trustee corporations, which are composed of and controlled by trustees.

A few states also permit certain officers of hierarchical churches to form a corporation sole, which is a corporation consisting of a single individual.

Is your church incorporated? Many ministers don’t know. But there are several reasons why ministers should know whether or not their church is incorporated, including these four.

1. Members’ immunity from liability

The members of a corporation may be liable for their own acts and omissions, but they are not liable for the acts or omissions of other members or of the corporation itself. Many regard this as the most compelling advantage of the corporate form of organization. To illustrate, if a member molests a minor during a church activity, and the church is sued by the victim and is awarded an amount in excess of the church’s insurance coverage, the plaintiff cannot collect anything from other members who did not participate in or facilitate the injury.

The Model Nonprofit Corporation Act, which serves as the nonprofit corporation law for several states, specifies that “a member of a corporation is not, as such, personally liable for the acts, debts, liabilities, or obligations of the corporation.”

2. Annual reports

The Model Nonprofit Corporation Act requires that all nonprofit corporations file an annual report with the secretary of state’s office. A few states have amended this provision to require reports less frequently, such as once every two years.

The report is filed on a form provided by the secretary of state, and ordinarily sets forth the name of the corporation, the address of the corporation’s registered office in the state of incorporation, the name of the registered agent at such address, the names and addresses of the directors and officers, and a brief statement of the nature of the affairs the corporation is actually conducting. A nominal fee must accompany the report.

States that have adopted the Act differ with regard to the penalties imposed upon corporations that fail to file the annual report by the date prescribed. The Act itself imposes a nominal fine ($50) on corporations that fail to comply with the reporting requirement. Many states have followed this provision, but others call for the cancellation of a corporation’s certificate of incorporation. Cancellation of a certificate of incorporation has the effect of terminating the existence of a corporation. This is an extraordinary penalty, generally available only after the secretary of state’s office has sent the corporation a written notice of the impending cancellation.

If a corporation fails to respond to the written notice, the secretary of state issues a certificate of cancellation, which is the legal document terminating both the certificate of incorporation and the corporation’s legal existence. Many states permit reinstatement of terminated corporations. Reinstatement generally is available upon the filing of a formal application within a prescribed time. Because of the potentially adverse consequences resulting from a cancellation of a church’s corporate charter (including joint liability of members for the wrongful acts of other members) church leaders should periodically check with the office of their secretary of state to ensure that the church is a corporation in good standing. Many churches will find that they are not, either because they failed to file an annual return, or because their corporation was created for a specified period of time that has expired.

3. Duration

If your church is incorporated, what do your articles of incorporation say about the duration of the church’s corporate existence? Most pastors don’t know. But they should know because of the potentially adverse consequences (including joint liability of members for the wrongful acts of other members) resulting from an expiration of a church’s corporate charter. A church’s corporate charter should specify “perpetual” as its duration.

Key point. Be sure to check your church’s corporate duration (it’s specified in your articles of incorporation or charter) to confirm that it says “perpetual.”

4. Corporate governance

Incorporated churches are free to adopt bylaws addressing issues of internal administration, and a church’s bylaws generally take precedence over conflicting provisions in state nonprofit corporation law. In other words, state nonprofit corporation law may be viewed, in most cases, as a “gap filler”—filling gaps in a church’s bylaws. For example, if an incorporated church’s bylaws do not address how vacancies on the board are to be filled, or do not define a quorum, the nonprofit corporation law will “fill the gaps.” This feature can be helpful because it insures that issues of governance inadvertently omitted from a church’s bylaws will be, in most cases, addressed by the applicable nonprofit corporation law. In most cases, this is an effective defense against the chaos that otherwise can occur when a church’s governing documents provide no guidance. Here are a few issues that are addressed in nonprofit corporation laws in the event that a church’s governing documents are silent:

  • merger
  • consolidation
  • dissolution
  • quorum
  • meetings
  • limited liability
  • loans to officers
  • indemnification
  • inspection of records
  • fiduciary duties of board

How can you determine if your church is incorporated?

You can check to see if your church is incorporated through your secretary of state’s website. If you are informed that your church is incorporated, then you may wish to ask for a certificate of good standing (the name of this document varies somewhat from state to state) that confirms the corporate status of your church. You also should request a certified copy of your charter (articles of incorporation), to be sure that you have a copy of the document on file with the state.

Additional Reading

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Rich’s 15 Must-Knows for Pastors: Clergy-Penitent Privilege

Learn what statements or conversations are considered “privileged.”

Every state has a statute or court rule making certain communications to clergy “privileged.” This generally means that neither the minister nor the “penitent” can be forced to testify in court (or in a deposition or certain other legal proceedings) about the contents of the communication.

Pastors can use these eight questions to understand whether or not a statement or a conversation could be considered privileged by a court of law.

1. Is there a “communication”?

If you answered yes to this question, go to question 2. If you answered no, the clergy-penitent privilege does not apply.

Read the next two paragraphs to learn what a “communication” can include.

Usually, a “communication” refers to an oral conversation. This can include phone conversations. It can also include correspondence (such as letters and emails) and even gestures or other physical acts if intended to transmit ideas.

To illustrate, one court ruled that a counselee who pulled a gun out of his pocket and placed it on the pastor’s desk in response to the pastor’s question about a recent murder had made a “communication.” Other courts have ruled that a pastor’s impressions of a counselee’s demeanor are not communications because one’s demeanor is not a communication.

2. Was the communication made in confidence?

If you answered yes to this question, go to question 3. If you answered no, the clergy-penitent privilege does not apply.

Read the next two paragraphs to learn what it means for a communication to be made in confidence.

A communication is confidential if there is an expectation that it will not be revealed. In some states, the presence of a third person prevents a communication from being confidential. However, if the presence of a third person is legally required (e.g., a prisoner who cannot communicate with a minister unless a guard is present), the privilege may apply.

Several state laws extend the clergy-penitent privilege to situations in which other persons are present “in furtherance of the communication.” This probably would include marital counseling sessions when both spouses are present. However, statements made to a minister in the presence of deacons, elders, church members, or any other persons will not be privileged, unless specifically recognized by state law. Be sure to check state law.

3. Was the communication made to a minister?

If you answered yes to this question, go to question 4. If you answered no, the clergy-penitent privilege does not apply.

Read the next paragraph to learn more about who might or might not be considered a minister.

Communications made to church board members, a minister’s spouse, or “lay ministers” cannot be privileged. But in some states, a person who a counselee believes to be a minister will be so regarded for purposes of the clergy privilege.

4. Was the communication made to a minister acting in a professional capacity as a spiritual adviser?

If you answered yes to this question, go to question 5. If you answered no, the clergy-penitent privilege does not apply.

Read the next two paragraphs to learn what it means for a minister to be acting in a professional capacity as a spiritual adviser.

Generally, this requirement is met if a person seeks out a minister for spiritual counsel or confession. If a statement is made to a minister as a mere friend, the privilege does not apply.

A minister (or court) may need to ascertain the objective of a conversation in determining whether a communication is privileged. Was the minister sought out primarily for spiritual advice? Were the statements of a type that could have been made to anyone? Where did the conversation take place? Was the conversation pursuant to a scheduled appointment? What was the relationship between the minister and the person making the communication? These are the kinds of questions which help to clarify the purpose of a particular conversation, thereby determining the availability of the privilege.

5. Are you legally authorized to assert the privilege?

If you answered yes to this question, go to question 6. If you answered no, the clergy-penitent privilege does not apply.

Read the next paragraph to learn what it means to be legally authorized to assert the privilege.

In most states, both the person who made the communication and the minister to whom it was made may claim the privilege. Rule 505 of the Uniform Rules of Evidence, which has been adopted by several states, specifies that “the privilege may be claimed by the person, by his guardian or conservator, or by his personal representative if he is deceased. The person who was the minister at the time of the communication is presumed to have authority to claim the privilege but only on behalf of the communicant.” However, in some states, only the penitent or “counselee” may assert the privilege, not the minister.

If you answered yes to this question, go to question 7. If you answered no, the clergy-penitent privilege does not apply.

Read the next paragraph for more information on how to know if all additional legal requirements are met.

You will need to review your state clergy-penitent privilege statute to identify any additional legal requirements that may apply. Some states require that the communication be made in the course of spiritual “discipline.” While most courts interpret this requirement broadly to cover statements made in the course of spiritual counsel and advice, a few courts in some older cases applied this language exclusively to Catholic priests.

7. Has the privilege been waived by the counselee?

If you answered no to this question, go to step 8. If you answered yes to this question, the clergy-penitent privilege does not apply.

Read the next paragraph to learn about how a privilege can be waived by the counselee.

A privilege may be waived if a counselee discloses to others the same information shared in confidence with a minister. If the privilege is waived, it no longer protects communications against compelled disclosure in a court of law or judicial proceeding. To illustrate, one court ruled that a counselee waived any privilege when he disclosed to the police the substance of confidential communications he had made to his minister. In some states, the minister also may waive the privilege.

8. Did the counselee confess to or disclose one or more incidents of child abuse?

If you answered no, and if all of the conditions summarized in the preceding questions have been satisfied, then the clergy-penitent privilege probably applies. To be certain, check with an attorney licensed to practice law in your state.

If the counselee did confess to or disclose one or more incidents of child abuse, then you may be legally required to report this information to the civil authorities. Check with your state child abuse reporting law, and a local attorney, to be sure. Some states do not abrogate the privilege if the requirements of the privilege are met and child abuse is disclosed.

Caution. Some of these eight steps implicate complex legal issues for which the assistance of an attorney is essential.

Additional Reading

For deeper readings on clergy-penitent privilege, see these resources and articles:

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Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Rich’s 15 Must-Knows for Pastors: Accountable Reimbursement Arrangements

Review the four specific requirements for business expense reimbursements.

Last Reviewed: October 24, 2024

Most ministers and lay church employees incur expenses when performing their duties. The tax treatment of these expenses depends on whether a person is an employee or self-employed, whether the expenses are reimbursed by the church, and whether any reimbursed expenses are paid under an accountable or a nonaccountable reimbursement plan.

Here are a few important details to understand about business expense reimbursements.

Unreimbursed business expenses

These expenses were no longer deductible by employees as itemized expenses on Schedule A (Form 1040) after 2017.

Employee business expenses reimbursed under a nonaccountable arrangement

These expenses were no longer deductible by employees as itemized expenses on Schedule A (Form 1040) after 2017.

Avoid limitations with an accountable arrangement

The limitations on the deductibility of employee business expenses (summarized above) can be avoided if the church adopts an accountable reimbursement plan. An accountable plan is one that meets all of the following requirements:

  1. Only business expenses are reimbursed.
  2. No reimbursement is allowed without an adequate accounting of expenses within a reasonable period of time—not more than 60 days after an expense is incurred.
  3. Any excess reimbursement must be returned to the employer within a reasonable period of time—not more than 120 days after an excess reimbursement is paid.
  4. An employer’s reimbursements must come out of the employer’s funds and not by reducing the employee’s salary.

Under an accountable plan, an employee reports to the church rather than to the IRS. The reimbursements are not reported as income to the employee, and the employee does not claim any deductions. This is the best way for churches to handle reimbursements of business expenses.

If the requirements of an accountable reimbursement arrangement are not met, then the church’s reimbursement of an employee’s business expenses must be reported by the church as taxable income to the recipient.

For more help, see Chapter 7 of Richard R. Hammar’s Church & Clergy Tax Guide. It provides detailed reimbursement guidance on business and professional expenses, including transportation, travel, entertainment, education, phones, and more.

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Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Rich’s 15 Must-Knows for Pastors: Ministerial Exception

The law doesn’t always protect pastors from employment discrimination.

In employment disputes involving a pastor or minister of a church, the term “ministerial exception” comes up time and again. It is therefore imperative that all clergy have a good working knowledge of what this exception is and its legal underpinnings.

The importance of the Hosanna-Tabor ruling

The exception, which finds its origin in several federal and state judicial decisions in the mid-20th century, generally bars the civil courts from resolving employment disputes between churches and clergy. The ministerial exception was affirmed by a unanimous United States Supreme Court in a 2012 ruling. Hosanna–Tabor Evangelical Lutheran Church and School v. E.E.O.C., 132 S.Ct. 694 (2012).

The Court concluded that the First Amendment prevents the civil courts from “interfering with the freedom of religious groups to select” their clergy.

Significantly, the Supreme Court for the first time explicitly acknowledged that the ministerial exception is required by the First Amendment:

We agree that there is such a ministerial exception. The members of a religious group put their faith in the hands of their ministers. Requiring a church to accept or retain an unwanted minister, or punishing a church for failing to do so, intrudes upon more than a mere employment decision. Such action interferes with the internal governance of the church, depriving the church of control over the selection of those who will personify its beliefs. By imposing an unwanted minister, the state infringes the Free Exercise Clause, which protects a religious group’s right to shape its own faith and mission through its appointments. According the state the power to determine which individuals will minister to the faithful also violates the Establishment Clause, which prohibits government involvement in such ecclesiastical decisions.

The Court declined “to adopt a rigid formula for deciding when an employee qualifies as a minister.” But it concluded that the plaintiff in this case, a called teacher and commissioned minister in a Lutheran school, was a minister to whom the ministerial exception applied. As a result, her claims of disability discrimination and retaliation against a church-operated school had to be dismissed.

In support of its decision that the plaintiff was a minister, the Court applied the following four-part test:

  • The church held out the plaintiff as a minister, with a role distinct from that of most of its members.
  • The plaintiff’s title as a minister reflected a significant degree of religious training followed by a formal process of commissioning.
  • The plaintiff held herself out as a minister of the church.
  • The plaintiff’s job duties reflected a role in conveying the church’s message and carrying out its mission.

What is the relevance of this ruling to churches and church leaders? Consider the following four points.

1. The ministerial exception is now settled law

While the ministerial exception has been recognized by many state and federal courts over the past half century, it was rejected by a handful of courts. The Supreme Court’s decision unequivocally establishes the ministerial exception as a matter of law. This conclusion is reinforced by the fact that the Court’s decision was unanimous.

However, note that the Court gave this clarification:

The case before us is an employment discrimination suit brought on behalf of a minister, challenging her church’s decision to fire her. Today we hold only that the ministerial exception bars such a suit. We express no view on whether the exception bars other types of suits, including actions by employees alleging breach of contract or tortious conduct by their religious employers. There will be time enough to address the applicability of the exception to other circumstances if and when they arise.

Nevertheless, there are numerous forms of “employment discrimination” claims under state and federal laws that are directly affected by the Court’s ruling, including those banning employment discrimination on the basis of race, color, national origin, gender, disability, military status, marital status, sexual orientation, and use of lawful products.

A number of courts in recent years have applied the ministerial exception to compensation disputes between churches and ministers, including claims for back pay, fringe benefits, and overtime compensation. The Court’s decision in the Hosanna-Tabor case does not directly address these claims. Its decisive recognition of the ministerial exception in employment discrimination cases undoubtedly makes it more likely that the exception will apply to compensation-based disputes, as many state and lower federal courts have ruled.

2. Who is a “minister”?

After recognizing the existence of a ministerial exception, the Court turned its attention to the meaning of the term “minister.” It is important to define this term, since the ministerial exception only insulates employment disputes between churches and ministers from civil court interference.

The Court noted that the term “minister” is not limited “to the head of a religious congregation,” but the Court declined “to adopt a rigid formula for deciding when an employee qualifies as a minister.” Rather, it chose to address only the plaintiff in this case, a called teacher and commissioned minister in a Lutheran school, and concluded that she was a minister to whom the ministerial exception applied. As a result, her claims of disability discrimination and retaliation against a church-operated school had to be dismissed.

The most frequently cited definition of “minister” applied by state and lower federal courts in the context of the ministerial exception was announced by a federal appeals court in 1985. Rayburn v. General Conference of Seventh-Day Adventists, 772 F.2d 1164 (4th Cir. 1985). In concluding that an “associate in pastoral care” was a minister, the court laid down the following definition:

The fact that an associate in pastoral care can never be an ordained minister in her church is likewise immaterial. The ministerial exception to Title VII . . . does not depend upon ordination but upon the function of the position. As a general rule, if the employee’s primary duties consist of teaching, spreading the faith, church governance, supervision of a religious order, or supervision or participation in religious ritual and worship, he or she should be considered clergy.

It is likely that the Rayburn case will continue to be used in defining the term “minister” in employment discrimination cases brought by employees who do not satisfy the four factors enumerated by the Supreme Court in the Hosanna-Tabor case.

Key point. Churches can increase the likelihood that the ministerial exception applies to a staff member through judicious drafting of his or her job description, taking special care to incorporate the Supreme Court’s four-factor test and the definition of “minister” in the Rayburn case (see above).

3. Significance of being ordained, commissioned, or licensed

The Supreme Court noted that the plaintiff’s status as a commissioned minister did not, by itself, “automatically ensure coverage” under the ministerial exception, but the Court concluded that “the fact that an employee has been ordained or commissioned as a minister is surely relevant, as is the fact that significant religious training and a recognized religious mission underlie the description of the employee’s position.”

4. Time spent performing religious duties

Another important aspect of the Court’s ruling in the Hosanna-Tabor case was its conclusion that a finding of ministerial status cannot be based solely on the amount of time a person spends on religious functions. In rejecting a lower court’s conclusion that the ministerial exception did not apply because of the limited time that the teacher devoted to religious tasks, the Court observed:

The issue before us, however, is not one that can be resolved by a stopwatch. The amount of time an employee spends on particular activities is relevant in assessing that employee’s status, but that factor cannot be considered in isolation, without regard to the nature of the religious functions performed.

The Court acknowledged that the teacher’s religious duties “consumed only 45 minutes of each workday, and that the rest of her day was devoted to teaching secular subjects.” However, the Court noted that it was unsure whether any church employees devoted all their time to religious tasks:

The heads of congregations themselves often have a mix of duties, including secular ones such as helping to manage the congregation’s finances, supervising purely secular personnel, and overseeing the upkeep of facilities.

Additional Reading

For more on ministerial exception, see the following:

Take me back to “Rich’s 15 Must-Knows for Pastors” to choose an article of interest or that fits a particular need.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Rich’s 15 Must-Knows for Pastors: Housing Allowances

Understand how to properly set this significant pastoral benefit.

The housing allowance is one of the most important tax benefits available to ministers. However, many ministers don’t fully benefit from it—often because they, their tax advisers, or church boards aren’t familiar with the rules.

Understanding the tax treatment of different housing situations can help ministers maximize this benefit.


Common Housing Arrangements for Ministers

Ministers typically fall into one of three housing situations:

  1. Owning a home
  2. Renting a home or apartment
  3. Living in a church-provided parsonage

Each arrangement comes with specific tax advantages. Here’s a breakdown.


Ministers Who Own Their Home

Ministers who own their home can exclude from federal income tax the portion of their church-designated compensation used for housing—if the following conditions are met:

  • The allowance is designated in advance by the church.
  • It is used to pay housing-related expenses.
  • It does not exceed the home’s fair rental value (furnished, plus utilities).

Qualifying expenses include:

  • Mortgage payments
  • Utilities
  • Repairs and maintenance
  • Furnishings
  • Property taxes and insurance
  • Additions and improvements

Ministers Who Rent

Ministers who rent a home or apartment receive a similar benefit. They can exclude from federal income tax the amount of compensation designated as a housing allowance, provided that:

  • The allowance is designated in advance.
  • It is used for rental expenses.
  • It does not exceed the fair rental value of the home (furnished, plus utilities).

Ministers Living in a Church-Owned Parsonage

Ministers who live in a church-provided parsonage enjoy two key benefits:

  1. No federal income tax is owed on the fair rental value of the parsonage.
    • This amount is not reported as income on Form 1040.
  2. Ministers may also exclude from federal income tax a parsonage allowance, designated in advance, that covers out-of-pocket housing-related expenses (e.g., utilities, repairs, furnishings).

Setting Housing and Parsonage Allowances

To qualify, housing or parsonage allowances must be:

  • Designated in writing
  • Approved in advance of the calendar year
  • Adopted by the church board or congregation

Note: If a church misses the deadline, it should still make the designation as soon as possible in the new year. However, it will only apply prospectively.

Important consideration:
The nontaxable portion of the allowance cannot exceed the fair rental value of the home (furnished, plus utilities). There’s no benefit to designating an amount beyond this limit.


Using “Safety Nets”

Some churches include language in their allowance designations to guard against oversights. These “safety net” clauses can be helpful in situations such as:

  • The board forgets to reauthorize the allowance for a future year.
  • A new minister is hired midyear.
  • There’s a delay in formal board action.

Example safety net language:

  • “This housing allowance is effective for calendar year 2025 and all future years unless otherwise provided.”
  • “40% of each minister’s compensation is designated as a housing allowance for the current year and all future years unless specifically modified.”

Important: Safety nets are not a substitute for annual, individualized designations. They are a backup—not a replacement.


Key Details Ministers Should Know

Here’s a quick-reference summary of essential rules and reminders:

  • Housing allowances must be designated in advance. Retroactive designations are not valid.
  • The nontaxable amount is limited to the lesser of:
    • The designated allowance,
    • Actual housing expenses, or
    • The home’s fair rental value (furnished, plus utilities).
  • Allowances can be amended during the year, but only take effect prospectively.
  • Any excess allowance must be reported on Form 1040, Line 1.
  • The housing allowance exclusion applies to federal income taxes only. Ministers must include it when calculating self-employment tax (unless exempt).
  • The fair rental value of a parsonage provided by the church is not taxable.
  • The board should add next year’s allowance designation to its final meeting agenda of the current year. The action must be officially adopted and recorded in the minutes.
  • The IRS also recognizes designations made in employment contracts or budget documents, as long as they are adopted in advance.

Estimating the Allowance

Most churches ask ministers to estimate their housing expenses for the upcoming year using a standardized form. For homeowners, this often includes:

  • Down payment
  • Mortgage payments
  • Property taxes and insurance
  • Utilities, furnishings, and appliances
  • Repairs, improvements, and maintenance
  • Miscellaneous housing-related costs

Tip:

Churches should consider designating more than the estimated amount to cover unforeseen costs or underestimations. Capping the allowance at the initial estimate could unfairly penalize ministers if actual expenses exceed projections.


Special Note for Ministers Without a Mortgage

When ministers pay off their mortgage, they often lose a large portion of their housing allowance exclusion. Some choose to:

  • Take out a home equity loan, or
  • Use a new mortgage on a debt-free home

They may count loan payments as housing expenses—but only if the loan is used for housing-related costs. The Tax Court has confirmed this.


Additional Reading

For more on housing allowances, see the following:

Take me back to “Rich’s 15 Must-Knows for Pastors” to choose an article of interest or that fits a particular need.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Rich’s 15 Must-Knows for Pastors: Exemption from Self-Employment Taxes

Learn what this exemption includes and why few ministers qualify for it.

While most ministers are employees for federal income tax reporting purposes, the tax code treats them as self-employed for Social Security and Medicare with respect to services they perform in the exercise of their ministry. This means that ministers are not subject to the employee’s share of Social Security and Medicare taxes (i.e., the FICA taxes, of which employers pay 7.65 percent and employees pay 7.65 percent), even though they report their income taxes as employees and receive a Form W-2 from their church.

Rather, ministers pay the self-employment tax (SECA) of 15.3 percent.


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Ministers who work after they retire must continue to pay SECA on their ministerial income and wages—unless they exempted themselves from self-employment tax as a minister and they are employed in a ministerial capacity.

Requirements for a SECA exemption

If ministers meet several requirements, they may exempt themselves from self-employment taxes with respect to their ministerial earnings. Among other things, the exemption application (Form 4361) must be submitted to the IRS within a limited time period. The deadline is the due date of the federal tax return for the second year in which a minister has net earnings from self-employment of $400 or more, any part of which comes from ministerial services.

Further, the exemption is available only to ministers who are opposed on the basis of religious considerations to the acceptance of benefits under the Social Security program (or any other public insurance system that provides retirement or medical benefits).

A minister who files the exemption application may still purchase life insurance or participate in retirement programs administered by nongovernmental institutions (such as a life insurance company). Additionally, the exemption does not require a minister to revoke all rights to Social Security benefits earned through participation in the system through secular employment.

A minister’s opposition must be to accepting benefits under Social Security (or any other public insurance program) which are related to services performed as a minister. Any other nonreligious considerations are not a valid basis for the exemption, nor is opposition to paying the self-employment tax.

Economic reasons are also not acceptable. In 1970, the IRS ruled that ministers who exempt themselves from self-employment taxes solely on the basis of economic considerations are not legally exempt. Revenue Ruling 70-197. The IRS concluded:

The taxpayer filed the Form 4361 solely for economic considerations and not because he was conscientiously opposed to, or because of religious principles opposed to, the acceptance of any public insurance of the type described on the form. Accordingly . . . the taxpayer did not qualify for the exemption since the Form 4361 filed solely for economic reasons is a nullity.

Exemption effective upon approval by IRS

The exemption is only effective when it is approved by the IRS. Few ministers qualify for the exemption. Many younger ministers opt out of the self-employment tax without realizing that they do not qualify for the exemption.

In general, a decision to opt out of self-employment tax is irrevocable. Congress did provide ministers with a brief “window” of time to revoke an exemption by filing Form 2031 with the IRS. This opportunity expired in 2002 and has not been renewed. The IRS also provides guidance for a minister who opted out for reasons solely based on economic considerations. The process for seeking such a revocation requires extensive documentation. More details are provided in chapter 9 of the annual Church & Clergy Tax Guide.

Exemption only applicable for compensation for ministerial services

An exemption from self-employment taxes applies only to compensation for ministerial services. Ministers who have exempted themselves from self-employment taxes must pay Social Security taxes on any non-ministerial compensation they receive. They remain eligible for Social Security benefits based on their non-ministerial employment assuming that they have worked enough quarters. Generally, 40 quarters are required.

Also, the Social Security Administration has informed me that ministers who exempt themselves from self-employment taxes may qualify for Social Security benefits (including retirement and Medicare) on the basis of their spouse’s coverage, if the spouse had enough credits. However, the amount of these benefits will be reduced by the so-called “windfall elimination provision.” Contact a Social Security Administration office for details.

The amount of earnings required for a quarter of coverage in 2022 is $1,510. A quarter of coverage is the basic unit for determining whether a worker is insured under the Social Security program.

Additional reading

For more on the exemption from self-employment taxes, see the following:

Take me back to “Rich’s 15 Must-Knows for Pastors” to choose an article of interest or that fits a particular need.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Rich’s 15 Must-Knows for Pastors: Taxable Income

Correctly report tax liability with this helpful reference guide.

Key Point: Many churches do not understand that most benefits constitute taxable income.

If a benefit is taxable and is not reported as taxable compensation by the church or the recipient in the year it is provided, the IRS may be able to assess intermediate sanctions in the form of substantial excise tax against the “disqualified persons” (generally, an officer, director, or relative of such a person) regardless of the amount of the benefit.

For this reason, ministers should be familiar with the components of taxable income to insure that they are correctly reporting their tax liability. Some examples of items that often constitute taxable income but are often overlooked include:

Additional reading

Many of the items above are linked for further explanation about taxable benefits. For more information and examples of taxable benefits, see these two resources:

Take me back to “Rich’s 15 Must-Knows for Pastors” to choose an article of interest or that fits a particular need.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Rich’s 15 Must-Knows for Pastors: Public Accommodations Laws

Understand how discrimination laws affect which outside groups can use church facilities.

A place of public accommodation is broadly defined as a place that offers the public some sort of goods and/or services.

Most states and many cities have enacted laws prohibiting various forms of discrimination by places of public accommodation.

According to the National Conference of State Legislators, “18 jurisdictions prohibit discrimination based on marital status, 25 prohibit discrimination based on sexual orientation, [and] 24 prohibit discrimination based on gender identity.”

Some state laws exempt religious organizations, but others contain no explicit exemption.

This raises questions for some churches and pastors.

Can churches or clergy be penalized under a state or local public accommodations law for sermons and other teachings that reject, on doctrinal grounds, same-sex marriages or gender identity different from one’s gender at birth?

Several decisions of the United States Supreme Court strongly suggest that the First Amendment guaranty of religious freedom permits clergy to perform or not perform marriages consistent with their religious beliefs.

One example includes a unanimous 2012 decision recognizing a church’s right to hire and fire ministers for any reason (the “ministerial exception”), including for matters related to doctrine and theology. Hosanna-Tabor Evangelical Lutheran Church and School v. EEOC, 565 U. S. 171 (2012). The ministerial exception, which is rooted in the First Amendment’s religion clauses, prevents the civil courts from resolving employment discrimination disputes between churches and clergy.

This will protect the decisions of churches and religious denominations regarding the selection, ordination, and discipline of clergy on the basis of sexual orientation or any other condition or status. And it supports the exclusive autonomy of churches to resolve issues of discipline and doctrine which, at least indirectly, protects decisions by clergy regarding who they will, or will not, marry.

Another example:

Another example is 303 Creative v. Elenis (600 U.S. ____ (2023), a 6-3 decision that recognizes speech-related protections afforded to businesses under the First Amendment. The case demonstrates the constitutional defenses potentially available if a court or state agency sanctions a business, church, or minister under a public accommodations law for activities deemed to be speech. In 303 Creative, the Court’s majority found Colorado used its public accommodations law in a manner that compelled a business owner to create speech she disagreed with based on her religious beliefs.

The Court noted: “(N)o public accommodations law is immune from the demands of the Constitution . . . and when a state public accommodations law and the Constitution collide, there can be no question which must prevail.”

Lastly, it is also worth noting that, in the country’s nearly 250-year history, no minister has ever been sued, much less found liable, for refusing to perform a wedding for other reasons, such as ones resulting in bigamy, polygamy, or incest, or ones in which one or both spouses were previously married and divorced. A minister’s refusal to marry a same-sex couple in contravention of his or her religious beliefs should be viewed in the same light.

Is the church a “place of public accommodation” under applicable local, state, or federal laws, and thus subject to penalties for violating them?

There are three possibilities for answering this question:

  • The law excludes churches from the definition of a “place of public accommodation.”
  • Churches are excluded from the definition of a “place of public accommodation” but only if certain conditions are met. For example, a church does not rent its property to the public for weddings and other events.
  • Churches are included in the definition of a place of public accommodation even if they do not rent their property to the public or engage in any other commercial activity. To illustrate, four churches challenged a 2016 Massachusetts law that was construed by the state attorney general to include “houses of worship” within the definition of a place of public accommodation regardless of rental or other commercial activity. The state attorney general later announced that “while religious facilities may qualify as places of public accommodation if they host a public, secular function, an unqualified reference to ‘houses of worship’” was inappropriate.

Whether churches are deemed to be places of public accommodation under state or local law will depend on the language of the applicable public accommodations law. What follows are summaries of most of the court cases, listed in chronological order, which have addressed this question. Note that quotations without attributions are statements made by the court.

Traggis v. St. Barbara’s Greek Orthodox Church, 851 F.2d 584 (2d Cir. 1988)

A church had not violated a Connecticut law banning several kinds of discrimination in places of public accommodation because a church is not a place of public accommodation.

Roman Catholic Archdiocese v. Commonwealth of Pennsylvania, 548 A.2d 328 (Penn. 1988)

Parochial schools run by a Catholic church are not places of public accommodation under Pennsylvania law.

Presbytery of New Jersey v. Florio, 40 F.3d 1454 (3rd Cir. 1994) aff’d 99 F.3d 101 (1996)

In dismissing a church’s request for an injunction barring the state from applying against churches a public accommodations law banning discrimination based on sexual orientation, the court relied in part on the following assurance provided by a state civil rights agency:

It has been the consistent construction and interpretation of the [law] that, consonant with constitutional legal barriers respecting legitimate belief and free exercise protected by the First Amendment, the state was not authorized to regulate or control religious worship, beliefs, governance, practice or liturgical norms, even where ostensibly at odds with any of the law’s prohibited categories of discrimination.

Wazeerud–Din v. Goodwill Home & Missions, Inc., 737 A.2d 683 (1999)

A church’s addiction program was not a place of public accommodation under New Jersey law; the group was essentially religious in nature in that it devoted time to the study of Christian tenets and “a religious institution’s solicitation of participation in its religious activities is generally limited to persons who are adherents of the faith or at least receptive to its beliefs.”

Donaldson v. Farrakhan, 762 N.E.2d 835 (Mass. 2002)

The Massachusetts Supreme Judicial Court considered whether a public accommodation law applied to a religiously affiliated event that was not open to women. The event in question was a speaking event promoted, organized, and funded by a mosque, and presented by minister Louis Farrakhan at a city-owned theater, to address drugs, crime, and violence in the community. The event was not a “public, secular function” of the mosque, according to the court.

The court also found that application of the public accommodation law to require the admission of women to the event “would be in direct contravention of the religious practice of the mosque” because it would impair the “expression of religious viewpoints” of the mosque with respect to the “separation of the sexes” and the role of men in the community. The court thus further held that the “forced inclusion of women in the mosque’s religious men’s meeting by application of the public accommodation statute” would “significantly burden” the mosque’s First Amendment rights of expression and association.

Sailant v. City of Greenwood, 2003 WL 24032987 (S.D. Ind. 2003)

“The church is not a place of public accommodation.”

Vargas–Santana v. Boy Scouts of America, 2007 WL 995002 (D.P.R. 2007)

“As a matter of law, a church is not a place of public accommodation.”

Abington Friends School, 207 WL 1489498 (E.D. Pa. 2007)

This case involved the interpretation of the exemption of religious organizations from the public accommodations discrimination provisions in the Americans with Disabilities Act (ADA). The court quoted from the ADA regulations:

Although a religious organization or a religious entity that is controlled by a religious organization has no obligations under the rule, a public accommodation that is not itself a religious organization, but that operates a place of public accommodation in leased space on the property of a religious entity, which is not a place of worship, is subject to the rule’s requirements if it is not under control of a religious organization. When a church rents meeting space, which is not a place of worship, to a local community group or to a private, independent day care center, the ADA applies to the activities of the local community group and day care center if a lease exists and consideration is paid. 28 C.F.R. Pt. 36, App. B (2007).

Sloan v. Community Christian School, 2015 WL 10437824 (M.D. Tenn. 2015)

This case addressed the definition of “a place of public accommodation” under Title III of the ADA rather than a state or local public accommodations law. Nevertheless, its discussion of this key term provides some clarification, even if by inference. It suggests that churches that operate “a day care center, a nursing home, a private school, or a diocesan school system,” may be places of public accommodation subject to the nondiscrimination provisions of a local or state public accommodations law.

Barker v. Our Lady of Mount Carmel School, 2016 WL 4571388 (D.N.J. 2016)

“Although churches, seminaries and religious programs are not expressly excluded from the definition of ‘place of public accommodation,’ the legislature clearly did not intend to subject such facilities and activities to the [public accommodations law]. Thus, the claims against these institutional defendants fail as a matter of law.”

Fort Des Moines Church v. Jackson, 2016 WL 6089642 (S.D. Iowa 2016)

A federal district court in Iowa refused to issue an injunction preventing state and local public accommodation laws from being enforced against a church, since there was no injury to be redressed. The court referenced an exception in the law for churches, and an affidavit from the state and city defendants that they had never applied the law to churches. But the court cautioned that a church that “engages in non-religious activities which are open to the public” would not be exempt, and it cited for example “an independent day care or polling place located on the premises of the place of worship.”

Hitching Post Weddings v. City of Coeur d’Alene, 172 F.Supp.3d 1118 (D. Idaho 2016)

A federal district court in Idaho ruled that the ordained ministers who ran a wedding chapel lacked “standing” to challenge the constitutionality of a municipal public accommodations law that they believed violated their constitutional rights of speech and the free exercise of religion because of their apprehension that they would be punished for refusing to perform same-sex marriages.

The court concluded that the religious organization lacked standing to litigate its claims since its concerns over future punishment for violating the ordinance was not a sufficient injury to satisfy the standing requirement. The court noted that no religious organization had ever been prosecuted for violating the ordinance, and that the city attorney had informed the wedding chapel that it would not be prosecuted.

Fulton v. City of Philadelphia, 141 S. Ct. 1868 (2021)

The US Supreme Court ruled that a church foster care agency was not a place of public accommodation. This meant the agency was not subject to the nondiscrimination provisions of the Pennsylvania public accommodations law banning discrimination based on sexual orientation or gender identity.

303 Creative LLC v. Elenis, 600 U.S. ___ (2023)

The US Supreme Court ruled that “no public accommodations law is immune from the demands of the Constitution . . . and when a state public accommodations law and the Constitution collide, there can be no question which must prevail.”

What forms of discrimination are prohibited by places of public accommodation?

The forms of discrimination forbidden by public accommodations laws vary from jurisdiction to jurisdiction. And they are often amended, so it is important for church leaders to be familiar with the current text of applicable public accommodation laws.

Can a church ever assert the First Amendment’s religion and/or speech clauses as defenses against penalties enforced against it through a state or local public accommodation law?

Yes. Several courts and administrative agencies have said that there are constitutional limits on the authority of government agencies to enforce the nondiscrimination provisions of public accommodation laws against churches. Heading the list is the US Supreme Court’s ruling in 303 Creative.

An illustration to consider

To illustrate, a federal district court in Iowa ruled that a church’s fear of being sued for violating a public accommodations law as a result of sermons on biblical sexual morality was too fanciful to give the church “standing” to pursue its claim in federal court. The court considered the church’s conduct to fall outside of the state statute. Fort Des Moines Church v. Jackson.

The court concluded:

Plaintiff alleges that it fears prosecution under the state and municipal discrimination bans if . . . its pastor delivers his sermon about biological sex and the Bible. However [this fear] is not objectively reasonable. All of the statutes, the ordinances, and the interpretations of the provisions appearing in the [state civil rights agency’s] guidance documents include an exemption for religious institutions when conducting religious activities.

Although the definitive scope of this exemption is yet to be determined, the court concludes the delivery of a sermon by a pastor of a church is undoubtedly an act intended to serve “a bona fide religious purpose.” Indeed, it is a quintessential religious activity. See Fowler v. State of R.I., 345 U.S. 67 (1953) . . . [in which the Supreme Court ruled] that it is not within “the competence of courts under our constitutional scheme to approve, disapprove, classify, regulate, or in any manner control sermons delivered at religious meetings,” and “sermons are as much a part of a religious service as prayers.”

Hence, plaintiff’s allegedly chilled course of conduct is not even arguably proscribed by the statute. Rather, it is expressly permitted. Accordingly, plaintiff’s fear of enforcement consequences if it delivers the sermon is not objectively reasonable because it does not face a credible threat of prosecution on that basis. . . . A plaintiff cannot show a threat of prosecution under a statute if it clearly fails to cover his conduct.

Presbytery of New Jersey v. Florio

Similarly, in Presbytery of New Jersey v. Florio, a federal district court in New Jersey ruled that the New Jersey Law Against Discrimination (NJLAD), which prohibits discrimination on various grounds including gender identity and sexual orientation in any “place of public accommodation,” did not apply to a church. The court relied on an affidavit submitted by the director of the state division of civil rights (the “Stewart affidavit”) setting forth the position of the division and state attorney general regarding enforcement of the nondiscrimination provisions in the state public accommodations law against religious institutions. The Stewart affidavit affirmed that the state did not consider churches places of “public accommodations,” and so the sections relating to public accommodations were “inapplicable to the church plaintiffs.”

The Stewart affidavit also made the following general statement:

It has been the consistent construction and interpretation of the [law] that, consonant with constitutional legal barriers respecting legitimate belief and free exercise protected by the First Amendment, the state was not authorized to regulate or control religious worship, beliefs, governance, practice or liturgical norms, even where ostensibly at odds with any of the law’s prohibited categories of discrimination. . . .

Moreover, the division has not and has no intention to engage in any determination or judgment as to what is or is not a “religious activity” of a church, or to determine what is or is not a “tenet” of religious faith. Within First Amendment limits, all of plaintiffs claimed religiously-based free exercises of faith are unthreatened by a reasoned construction of the NJLAD consistent with its meaning and long enforcement history.

Conclusions

While the definition of a “place of public accommodation” varies from jurisdiction to jurisdiction under laws prohibiting various forms of discrimination by places of public accommodation, the following two generalizations may be helpful.

Generalization one

First, it is likely that a church that does not invite or solicit the public to come onto its premises, whether to raise revenue or not, for events or activities unrelated to the core mission of the church will not be deemed a place of public accommodation and therefore will not be subject to the nondiscrimination provisions in a state or local public accommodations law. This is a generalization that likely will be true in many, perhaps most, cases, but not all.

Generalization two

Second, it is likely that a church that invites the general public onto its premises for purposes unrelated to worship or other activities in furtherance of the church’s religious purposes, will be deemed a place of public accommodation, especially if the primary purpose in doing so is raising revenue.

Key point. The court in the Iowa case referenced above cautioned that its conclusion that the church was not a place of public accommodation might have been different had the church “allowed the use of its facility as commercially available space with no religious limitations placed on such use.”

The cases referenced in this article are no guaranty that a court or state agency will elevate constitutional protections over the nondiscrimination provisions in a public accommodations law.

But after the Supreme Court’s 2023 decision in 303 Creative, the possibility of such an elevation is much greater.

Each of these cases certainly can be cited by churches—whether on First Amendment speech grounds, First Amendment free exercise of religion or non-establishment of religion grounds, or all of the above—in response to attempts by government regulators to apply such laws to them.

Learn more: Dig in to public accommodations laws, including ones affecting your church, through Church Law & Tax’s 50-State Public Accommodations Laws Report, a downloadable resource.

Seven key questions very church leader and pastor should ask

Prior to such a situation, though, church leaders should review the following seven questions, preferably in consultation with qualified legal counsel. Doing so will help identify potential legal liabilities posed by public accommodations laws, and possible ways to minimize those liabilities:

  1. Is there a public accommodations law in my city or state?
  2. If so, what types of discrimination does it prohibit?
  3. Does the law provide an exemption for churches?
  4. If the law provides an exemption for churches, are there any conditions that must be satisfied?
  1. If the law does not contain an explicit exemption for churches, what is the official position of the civil rights agency tasked with enforcement of the law? Does the agency take the position that churches are exempt? And if so, do any conditions apply? For example, does the exemption apply to churches that rent their property to raise revenue?
  2. If a state or local civil rights agency tasked with enforcement of a public accommodations law claims that it applies to churches that are engaged in commercial or other activities unrelated to exempt religious purposes, does church coverage only apply during the use of church property for the unrelated purpose, or more broadly to include all uses of church property?
  3. Does a church’s constitutional rights of religion and speech take priority over a public accommodations law?

Additional Reading

For more about this issue, see the follow:

Take me back to “Rich’s 15 Must-Knows for Pastors” to choose an article of interest or that fits a particular need.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Rich’s 15 Must-Knows for Pastors: Excess Benefit Transactions

Learn what common practices may expose pastors (especially senior pastors) to substantial excise tax.

 

The Internal Revenue Service defines excess benefit transaction as one in which “an economic benefit is provided by an applicable tax-exempt organization, directly or indirectly, to or for the use of a disqualified person, and the value of the economic benefit provided by the organization exceeds the value of the consideration received by the organization.”

This is an important concept for religious non-profits, churches, church leaders, and pastors, because excess benefit transactions come with sanctions that can extend even to board members.

Intermediate sanctions

If excessive compensation is paid to a “disqualified person,” Section 4958 of the tax code authorizes the Internal Revenue Service (IRS) to impose an excise tax—also called “intermediate sanctions”—against that disqualified person; and in some cases, against church board members individually. A disqualified person generally is any officer or director, or a relative of an officer or director. Most senior pastors will meet the definition of a disqualified person.

These taxes are substantial: up to 225 percent of the amount of compensation the IRS determines to be in excess of reasonable compensation. As a result, governing boards or other bodies that determine clergy compensation should be prepared to document any amount that may be viewed by the IRS as excessive. This includes salary, fringe benefits, and special-occasion gifts. If in doubt, obtain the opinion of a tax attorney.

Automatic excess benefits

In 2004, the IRS announced a new interpretation of section 4958. For the first time, the IRS asserted that some transactions will be considered “automatic” excess benefit transactions resulting in intermediate sanctions regardless of the amount involved. Even if the amount involved in a transaction is insignificant, it still may result in intermediate sanctions.

For example, a church’s payment or reimbursement of a pastor’s personal or business expenses under a nonaccountable arrangement, may constitute automatic excess benefits, regardless of the amount involved, unless they are reported as taxable income by the church on the pastor’s W-2, or by the pastor on Form 1040, for the year in which the benefits are provided.

This was an important development, since it exposed virtually every pastor and some nonministerial church employees to intermediate sanctions that had been reserved for a few highly paid charity CEOs. The term “excess,” in effect, has become irrelevant to the concept of excess benefits.

Check benefits carefully

In addition to a salary, churches often provide benefits to their employees. These benefits may include personal use of church property, payment of personal expenses, and reimbursement of business or personal expenses under a nonaccountable arrangement.

Pastors and church treasurers are often unaware that these benefits must be valued and reported as taxable income. This common practice may expose the pastor, and possibly church board members, to substantial excise taxes, since the IRS views these benefits as automatic excess benefits resulting in intermediate sanctions unless the benefit was reported as taxable income by the church or pastor in the year it was provided.

The lesson is clear: Sloppy church accounting practices can expose ministers, and in some cases church board members, to intermediate sanctions in the form of substantial excise taxes. It is essential for pastors and church treasurers to be familiar with the concept of automatic excess benefits so these penalties can be avoided.

Additional Reading

For more on excess benefit transactions and related topics, see the following:

Take me back to “Rich’s 15 Must-Knows for Pastors” to choose an article of interest or that fits a particular need.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Rich’s 15 Must-Knows for Pastors: Inspecting Church Records

Know when to say “yes” to a request to view confidential information.

Pastors should know how to answer a person’s request to inspect church records. Generally, there is no inherent right to inspect church records. However, such a right can be granted in some legal document such as a church’s bylaws or state nonprofit corporation law.

Here four possible justifications for a right of inspection.

1. Nonprofit Corporation Law

Some state nonprofit corporation laws give members of an incorporated church the right to inspect corporate records for any proper purpose at any reasonable time. Other state nonprofit corporation laws give members broad authority to inspect corporate records, but specify that “the articles or bylaws of a religious corporation may limit or abolish the right of a member . . . to inspect and copy any corporate records.”

A right of inspection, however, generally applies only to members. Persons who are not members of a church generally have no right to demand inspection of church records under nonprofit corporation law.

2. Church Charter or Bylaws

A right of inspection may be given by the bylaws or charter of a church corporation or association.

3. State Securities Law

Churches that raise funds by issuing securities (i.e., bonds or promissory notes) may be required by state securities laws to allow investors—whether members or not—to inspect the financial statements of the church.

4. Subpoena

Members and nonmembers alike may compel the production (i.e., disclosure) or inspection of church records as part of a lawsuit against a church if the materials to be produced or inspected are relevant and not privileged. For example, Rule 34 of the Federal Rules of Civil Procedure, adopted by several states and used in all federal courts, specifies that any party to a lawsuit

may serve on any other party a request (1) to produce and permit the party making the request, or someone acting on his behalf, to inspect and copy, any designated documents . . . which are in the possession, custody or control of the party upon whom the request is served; or (2) to permit entry upon designated land or other property in the possession or control of the party upon whom the request is served for the purpose of inspection.

Similarly, Rule 45(b) of the Federal Rules of Civil Procedure states that a subpoena may command the person to whom it is directed “to produce the books, papers, documents, or tangible things designated therein. . . .”

Rule 45 also stipulates that a subpoena may be quashed or modified if it is “unreasonable and oppressive.” Federal, state, and local government agencies are also invested with extensive investigative powers, including the right to subpoena and inspect documents. However, this authority generally may not extend to privileged or irrelevant matters.

Since church records are not inherently privileged, they are not immune from production or inspection. Although most states consider confidential communications to be privileged when they are made to clergy acting in their professional capacity as a spiritual adviser, several courts have held that the privilege does not apply to church records.

Case Studies

The following summaries of court cases offer pertinent insights for this issue.

  • The Alabama Supreme Court ruled that a dismissed church member no longer had a legal right to inspect church records. Lott v. Eastern Shore Christian Center, 908 So.2d 922 (Ala. 2005). Accord Ex parte Board of Trustees, 2007 WL 1519867 (Ala. 2007).
  • A Colorado court ruled that a church member’s legal authority to inspect church records pursuant to state nonprofit corporation law ended when his membership was revoked by the church board. Levitt v. Calvary Temple, 2001 WL 423040 (Colo. App. 2001).
  • A Louisiana court ruled that an incorporated church had to allow members to inspect church records. Four members asked for permission to inspect the following records of their church: (1) bank statements; (2) the check register and cancelled checks for all the church’s bank accounts; (3) the cash receipts journal; and (4) monthly financial reports.The pastor denied the members’ request. The members then sought a court order compelling the church to permit them to inspect the records. The pastor insisted that such an order would interfere with “internal church governance” in violation of the First Amendment.A state appeals court ruled that allowing the members to inspect records, pursuant to state nonprofit corporation law, would not violate the First Amendment. The court quoted from an earlier Louisiana Supreme Court ruling:

A voting member of a nonprofit corporation has a right to examine the records of the corporation without stating reasons for his inspection. Since the judicial enforcement of this right does not entangle civil courts in questions of religious doctrine, polity, or practice, the First Amendment does not bar a suit to implement the statutory right. First Amendment values are plainly not jeopardized by a civil court’s enforcement of a voting member’s right to examine these records. No dispute arising in the course of this litigation requires the court to resolve an underlying controversy over religious doctrine.

Jefferson v. Franklin, 692 So.2d 602 (La. App. 1997). The court quoted from the Louisiana Supreme Court’s decision in Burgeois v. Landrum, 396 So.2d 1275 (La. 1981).

  • A New York court ruled that a church member had the legal authority to inspect church records despite the pastor’s refusal to allow him to do so. The court acknowledged that only members had a legal right to inspect records, but it concluded that the member had not lost his status as a member of the church. It concluded:

The member is simply trying to enforce his secular rights as a member, using the church’s own criteria of membership and the pastor’s own admission that he has not been expelled as a member. Nor are the church’s First Amendment rights violated by the inspection of the records, as the questions involved here are not concerned with internal ecclesiastical or religious issues, but purely secular ones.

Watson v. The Manhattan Holy Bible Tabernacle, 732 N.Y.S.2d 405 (2001). Accord Smith v. Calvary Baptist Church, (N.Y.A.D. 2006).

  • The Texas Supreme Court ruled that a state nonprofit corporation law that granted a limited right to inspect corporate records did not mandate the disclosure of donor records. The Texas Nonprofit Corporation Act specifies that nonprofit corporations “shall maintain current true and accurate financial records with full and correct entries made with respect to all financial transactions of the corporation.” It further specifies that “all records, books, and annual reports of the financial activity of the corporation shall be kept at the registered office or principal office of the corporation . . . and shall be available to the public for inspection and copying there during normal business hours.”Based on these provisions, a group of persons demanded that a charity turn over documents revealing the identities of all donors and the amounts of donors’ annual contributions. The charity resisted this request, claiming that the inspection right provided under the nonprofit corporation law did not refer to inspection or disclosure of donor lists, and that even if it did, such a provision would violate the First Amendment freedom of association.The state supreme court ruled that the right of inspection did not extend to donor lists. It noted that “the statute does not expressly require that contributors’ identities be made available to the public.” And, it found that the intent of the legislature in enacting the inspection right “was not to force nonprofit corporations to identify the exact sources of their income; rather, it was to expose the nature of the expenditures of that money once received from the public and to make nonprofit organizations accountable to their contributors for those expenditures.” As a result, the statute “can be upheld as constitutional when interpreted as not requiring disclosure of contributors’ names.” In re Bacala, 982 S.W.2d 371 (Tex. 1998).

Additional Reading

For more on inspection of church records, see the following:

Go to the next article, “Embezzlement Prevention,” or return to “15 Things Richard Hammar Wants Pastors to Know” to choose an article of interest or that fits a particular need.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Rich’s 15 Must-Knows for Pastors: Embezzlement Prevention

Implement an effective system of internal control.

As hard as it may be to believe, embezzlement is an all-too-common occurrence in churches. The risk of embezzlement can be substantially reduced by adopting a strong system of internal control. Internal control is an accounting term that refers to policies and procedures adopted by churches to safeguard its assets and promote the accuracy of its financial records.

What policies and procedures has your church adopted to ensure that cash receipts are properly recorded and deposited? What policies and procedures has your church enacted to ensure only those cash disbursements that are properly authorized are made? These are the kinds of questions that are addressed by a church’s system of internal control.

Key point. The most important point to emphasize when it comes to internal control is “division of responsibilities.” The more that tasks and responsibilities are shared or divided, the lower the risk of embezzlement.

Key point. Many churches refuse to implement basic principles of internal control out of a fear of “offending” persons who may feel that they are being suspected of misconduct. The issue here is not one of hurt feelings, but accountability. The church, more than any other institution in society, should set the standard for financial accountability. After all, its programs and activities are rooted in religion, and it is funded with donations from persons who rightfully assume that their contributions are being used for religious purposes. The church has a high responsibility to promote financial accountability.

Church leaders can reduce the risk of embezzlement by reviewing common examples of poor internal controls, such as one person counts church offerings.

Additional reading

For more on internal controls and embezzlement, see the following:

Take me back to “Rich’s 15 Must-Knows for Pastors” to choose an article of interest or that fits a particular need.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Another Option for Tax Preparation: Enrolled Agents

Explore how enrolled agents provide affordable and expert tax preparation for pastors and church leaders.

Last Reviewed: January 16, 2025

Pastors and church leaders often ask accountants and attorneys to help prepare their taxes but may overlook another tax preparer worth considering: the enrolled agent (EA). The EA is the highest credential given by the Internal Revenue Service (IRS), and it is earned either by passing a comprehensive three-part test or based on the individual’s prior experience as an IRS employee.

“Elite status”

“Enrolled agents, like attorneys and certified public accountants (CPAs), have unlimited practice rights,” the IRS explains on its website. “This means they are unrestricted as to which taxpayers they can represent, what types of tax matters they can handle, and which IRS offices they can represent clients before.”

The agency describes the EA as “elite status,” and indicates high ethical standards must be followed, including at least 72 hours of continuing education requirements to be completed every three years.

The IRS’s EA test is challenging, and the ongoing continuing education requirement is substantial, says attorney and CPA Frank Sommerville, a Church Law & Tax senior editorial advisor who was an EA prior to earning his CPA license.

Lower fees and more experience in tax prep

“I personally know of enrolled agents to whom I would confidently refer ministers for tax prep,” says CPA Michael Batts, a senior editorial advisor for Church Law & Tax. “In reality, few tax attorneys actually prepare individual tax returns. Fees for EAs can also be less than those of a CPA.”

The lower rate for an EA becomes especially compelling, Sommerville notes, when considering that tax preparation is not part of the practice of law for attorneys and also the fact that there is a “very small percentage of CPAs who concentrate on tax, and an even smaller number who concentrate on tax return preparation.”

Experience is essential

The key criteria for selecting an EA, advisors say, mirrors the same one for choosing a tax attorney or CPA: experience.

“The focus needs to be their level of experience with ministers’ tax returns, whether it is an attorney, a CPA, or an EA,” says CPA Vonna Laue, another Church Law & Tax senior advisor. “EAs may be very knowledgeable about taxes, but this is a specialized area.”

Sommerville says, “I would not hesitate to recommend an EA if they prepared at least 50 minister returns per year and had practiced for 10 years or more—the same standard I have for CPA and attorney referrals.”

While EAs are not regulated by any state supreme courts (as attorneys are) or state boards of accountancy (as accountants are), or by any “self-regulating professional bodies” like both of those professions, the IRS oversight still lends credibility to EAs’ qualifications, says Ted Batson, a tax attorney and CPA with CapinCrouse who serves as a Church Law & Tax advisor-at-large. Their ability to represent clients before the IRS is especially useful, he says.

The screening steps Senior Editor Richard Hammar recommends for attorneys and CPAs should still be followed for EAs, though, Batson adds.

Hammar also believes an EA with proper experience can handle “routine tax returns.” But note that he still recommends hiring “a CPA or tax attorney for more complex tax questions requiring legal research.”

Matthew Branaugh is an attorney and editor for Church Law & Tax.

Rich’s 15 Must-Knows for Pastors

Insights to help you successfully navigate the complexities of church administration.

Your training to serve as a pastor prepared you to write sermons and guide the spiritual life of a congregation. But what about the administrative side of ministry? Attorney and CPA Richard R. Hammar knows only too well that pastors struggle with budgeting, understanding housing allowances, or running a business meeting.

In his 30-plus years of working with churches, he’s discovered 15 areas that frequently trip up new, and seasoned, pastors. Below are short reads on each topic to give you an overview and then links to in-depth articles for greater insight.

The editorial team of Church Law & Tax is made up of Matthew Branaugh, attorney-at-law, and Rick Spruill, digital content manager.

How to Prepare W-2s for Church Employees, Including Ministers

How a church reports taxable income and withheld income taxes for employees and ministers on the Form W-2.

Last Reviewed: January 3, 2025

Properly reporting taxable income and withheld income taxes for employees and ministers on the Form W-2 is essential.

A church should furnish copies B, C, and 2 of the 2024 Form W-2 to each employee by January 31, 2025. File Copy A with the Social Security Administration by January 31, 2025. If filing paper copies, send all Copies A with Form W-3, Transmittal of Wage and Tax Statements.

Key update

If a church files 10 or more forms of any combination of W-2 or 1099, it must submit the forms electronically. Churches new to the electronic filing requirements may be able to utilize the Social Security Administration’s Business Services Online option to electronically file the forms. There are also other independent providers available to provide for electronic filing at a reasonable price.


Become a Church Law & Tax Advantage Member today, and gain access to exclusive webinars, cohorts, advisor-generated content, and much more.


Although W-2s are not difficult to prepare, there are some tips you should know.

Tip one: Add cents to all amounts.

Make all dollar entries without a dollar sign and comma, but with a decimal point and cents. For example, $1,000 should read “1000.00.” Government scanning equipment assumes that the last two figures of any amount are cents. If you report $40,000 of income as “40000,” the scanning equipment would interpret this as 400.00 ($400)!

Tip two: Details matter.

Box a.

Report the employee’s Social Security number. If you do not provide the correct employee’s name and Social Security number on Form W-2, you may owe a penalty unless you have reasonable cause.

Insert “applied for” if an employee does not have a Social Security number but has applied for one. If you are filing the forms electronically, you will need to leave the box blank as most systems will not accept “applied for.” Additionally, most systems may not allow the box to be blank, so steps should be taken to avoid this situation.

Box b.

Insert your church’s federal employer identification number (EIN). This is a nine-digit number that is assigned by the IRS. Some churches have more than one EIN (for example, some churches that operate a private school have a number for both the church and the school). Be sure that the EIN listed on an employee’s Form W-2 is the one associated with the employee’s actual employer.

KEY POINT: A church should not have more than one employer identification number. If your church has more than one, then steps should be taken to bring all payroll reporting under one number and discontinue use of the second number.

Box c.

Enter your church’s name, address, and ZIP Code. It should match your Form 941 address.

Box d.

You may use this box to identify individual W-2 forms. This box is optional.

Box e.

Enter the employee’s name.

Box f.

Enter the employee’s address and ZIP Code.

Box 1.

Report all federal taxable wages paid to workers who are employees for federal income tax reporting purposes. This includes:

•  Salary, bonuses, prizes, and awards.

•  Taxable fringe benefits (including cost of employer-provided group term life insurance coverage that exceeds $50,000).

• Costs associated with life insurance not offered through a group term life insurance benefit plan and that is not considered as key life insurance.

•  The value of the personal use of an employer-provided car.

•  Most Christmas, birthday, anniversary, retirement, and other special occasion gifts (including “love” gifts) paid by the church.

•  Business expense reimbursements paid under a nonaccountable plan (one that does not require substantiation of business expenses within a reasonable time or does not require excess reimbursements to be returned to the church or reimburses expenses out of salary reductions). Also note that such reimbursements are subject to income tax and Social Security withholding if paid to nonminister employees.

•  Excess reimbursements paid through an accountable plan are included in an employee’s gross income and are reported on Form W-2. This may include a per diem or mileage allowance paid in excess of the approved amounts published by the IRS. Report the amount treated as substantiated (that is, the nontaxable portion) in box 12 using code L.

•  Moving expenses and expense reimbursements (except for reimbursements of the travel expenses of members of the US armed forces on active duty).

Box 1 (cont’d)

•  Any portion of a minister’s self-employment taxes paid by the church.

•  Amounts includible in income under a nonqualified deferred compensation plan because of section 409A.

•  Designated Roth contributions made under a section 403(b) salary reduction agreement.

•  Church reimbursements of a spouse’s travel expenses incurred while accompanying a minister on a business trip represent income to the minister unless the spouse’s presence serves a legitimate and necessary business purpose and the spouse’s expenses are reimbursed by the church under an accountable plan.

•  Churches that make a “below-market loan” to a minister of at least $10,000 create taxable income to the minister (some exceptions apply). A below-market loan is a loan on which no interest is charged, or on which interest is charged at a rate below the applicable federal rate.

•  Churches that forgive a minister’s debt to the church create taxable income to the minister.

•  Severance pay.

•  Payment of a minister’s personal expenses by the church.

•  Employee contributions to a health savings account (HSA) unless contributed through a Section 125 cafeteria plan.

•  Employer contributions to an HSA if includable in the income of the employee.

•  Employee contributions towards group health insurance premiums unless they are contributed through a Section 125 cafeteria plan.

What to leave out

For ministers who report their income taxes as employees, do not report in box 1 the annual fair rental value of a parsonage or any portion of a minister’s compensation that was designated (in advance) as a housing allowance by the church. Also, some contributions made to certain retirement plans out of an employee’s wages are not reported. If the nontaxable portion of a housing allowance (the lessor of actual expenses or the FRV plus utilities) is less than the church-designated allowance, it is the minister’s responsibility to report the excess housing allowance as additional income on line 1 of his or her Form 1040 (if an employee) or on Schedule C (if self-employed, however, such a status would be rare).

CAUTION

Taxable fringe benefits not reported as income in box 1 may constitute an automatic excess benefit transaction exposing the recipient and members of the church board to intermediate sanctions in the form of substantial excise taxes.

KEY POINT: Churches should not include in box 1 the annual fair rental value of a parsonage or a housing allowance provided to a minister as compensation for ministerial services.

Box 2.

List all federal income taxes that you withheld from the employee’s wages. The amounts reported in this box (for all employees) should correspond to the amount of withheld income taxes reported on your four 941 forms.

Box 3.

Report an employee’s wages subject to the “Social Security” component (the 6.2 percent rate for 2024) of FICA taxes. Box 3 should not list more than the maximum wage base for the “Social Security” component of FICA taxes ($168,600 for 2024 and $176,100 for 2025). This box usually will be the same as Box 1, but not always. For example, certain retirement contributions are included in Box 3 that are not included in Box 1. To illustrate, contributions to a 403(b) plan by salary reduction agreement may be excludable from income and not reportable in Box 1, but they are subject to FICA taxes and accordingly they represent Social Security and Medicare wages for nonminister employees.

KEY POINT: Remember that ministers (including those who report their income taxes as employees) are self-employed for Social Security with respect to their ministerial services, and so they pay self-employment taxes rather than the employee’s share of Social Security and Medicare taxes. There should never be any amounts in Boxes 3, 4, 5 or 6 on a minister’s Form W-2.

Churches that filed a timely Form 8274 exempting themselves from the employer’s share of FICA taxes do not report the wages of nonminister employees in this box since such employees are considered self-employed for Social Security purposes.

Box 4.

Report the “Social Security” component (6.2 percent) of Social Security and Medicare taxes that you withheld from a nonminister employee’s wages. This tax is imposed on all wages up to a maximum of $168,600 for 2024 and $176,100 for 2025. Do not report the church’s portion (the “employer’s share”) of Social Security and Medicare taxes. Ministers who report their income taxes as employees are still treated as self-employed for Social Security with respect to compensation from the performance of ministerial services. Ministers should leave this box blank.

Box 5.

Report a nonminister employee’s current and deferred (if any) wages subject to the Medicare component (1.45 percent) of FICA taxes. This will be an employee’s entire wages regardless of amount. There is no ceiling. For persons earning less than the annual maximum earnings subject to the 6.2 percent Social Security tax of $168,600 for 2024 ($176,100 for 2025) Box 3 and Box 5 both should show the same amount. If you pay more than $168,600 to a nonminister employee in 2024, Box 3 should show $168,600 and Box 5 should show the full amount of wages paid.

Box 6.

Report the Medicare component of FICA taxes that you withheld from the nonminister employee’s wages. The Medicare component of FICA applies to all wages. This is true for both current and deferred wages.The box will also include the additional Medicare tax withheld on wages greater than $200,000 and previously discussed. Ministers should leave this box blank.

Box 10.

Show the total dependent care benefits under a dependent care assistance program (section 129) paid or incurred by you for your employee. Include the fair market value of employer-provided daycare facilities and amounts paid or incurred for dependent care assistance through a section 125 cafeteria plan. Report all amounts paid or incurred including those in excess of the $5,000 exclusion. Include any amounts over $5,000 in Boxes 1, 3, and 5. For more information, see IRS Publication 15-B.

Box 11.

The purpose of box 11 is for the Social Security Administration (SSA) to determine if any part of the amount reported in Box 1 or Boxes 3 or 5 was earned in a prior year. The SSA uses this information to verify that they have properly applied the Social Security earnings test and paid the correct amount of benefits. Report distributions to an employee from a nonqualified plan in Box 11. Also report these distributions in Box 1. Under nonqualified plans, deferred amounts that are no longer subject to a substantial risk of forfeiture are taxable even if not distributed. Report these amounts in Boxes 3 (up to the Social Security wage base) and 5. Do not report in Box 11 deferrals included in Boxes 3 or 5 and deferrals for current year services (such as those with no risk of forfeiture).

If you made distributions and also are reporting any deferrals in Boxes 3 or 5, do not complete Box 11. See IRS Publication 957.

Unlike qualified plans, nonqualified plans do not meet the qualification requirements for tax-favored status. Nonqualified plans include those arrangements traditionally viewed as deferring the receipt of current compensation, such as a rabbi trust. Welfare benefit plans and plans providing termination pay, or early retirement pay, are not generally nonqualified plans.

KEY POINT:  Nonqualified retirement plans are subject to many difficult technical rules and substantial penalties for compliance failures. Additional information is available in IRS Publication 15 and IRS Publication 957, but qualified professional guidance is also recommended.

Box 12.

Insert the appropriate code and dollar amount in this box. Insert the code letter followed by a space and then insert the dollar amount on the same line within the box. Do not enter more than four codes in this box. Use another Form W-2 if you need more. Use capital letters for the codes and remember not to use dollar signs or commas. For example, to report a $3,000 contribution to a section 403(b) tax-sheltered annuity, you would report “E 3000.00” in this box. The codes are as follows:

A—This will not apply to church employees.

B—This will not apply to church employees.

C—You (the church) provided your employee with more than $50,000 of group term life insurance. Report the cost of coverage in excess of $50,000. It should also be included in Box 1 (and in Boxes 3 and 5 for nonminister employees).

D—Generally not applicable to churches, however, some churches have adopted 401(k) plans and would use this box to report elective deferrals into those plans.

E—The church made contributions to a 403(b) plan pursuant to a “salary reduction agreement” on behalf of the employee. Report the amount of the contributions. While this amount ordinarily is not reported in Box 1, it is included in Boxes 3 and 5 for nonminister employees since it is subject to Social Security and Medicare taxes with respect to such workers.

F—Generally not applicable to churches.

G—Generally not applicable to churches.

H—Generally not applicable to churches.

J—You (the church) are reporting sick pay. Show the amount of any sick pay that is not includable in the employee’s income because he or she contributed to the sick pay plan.

K—Generally not applicable to churches.

L—You (the church) reimbursed the employee for employee business expenses using the standard mileage rate or the per diem rates, and the amount you reimbursed exceeds the amounts allowed under these methods. Enter code “L” in Box 12, followed by the amount of the reimbursements that equal the allowable standard mileage or per diem rates. Any excess should be included in Box 1. For nonminister employees, report the excess in Boxes 3 (up to the Social Security wage base) and 5 as well. Do not include any per diem or mileage allowance reimbursements for employee business expenses in Box 12 if the total reimbursements are less than or equal to the amount deemed substantiated under the IRS-approved standard mileage rate or per diem rates.

M, N—Generally not applicable to churches.

P—Not applicable to churches. 

Q—Generally not applicable to churches.

R—Report employer contributions to a medical savings account on behalf of the employee. Any portion that is not excluded from the employee’s income also should be included in Box 1.

S—Report employee salary reduction contributions to a SIMPLE individual retirement account. However, if the SIMPLE account is part of a 401(k) plan, use code D.

T—Report amounts paid (or expenses incurred) by an employer for qualified adoption expenses furnished to an employee under an adoption assistance program that are not included in Box 1.

V—Generally not applicable to churches.

W—Report employer contributions to a health savings account (HSA). Include amounts the employee elected to contribute using a cafeteria plan.

Y—It is no longer necessary to report deferrals under a section 409A nonqualified deferred compensation plan in Box 12 using code Y.

Z—Report all amounts deferred (including earnings on deferrals) under a nonqualified deferred compensation (NQDC) plan that are included in income under section 409A of the tax code because the NQDC fails to satisfy the requirements of section 409A. Do not include amounts properly reported on Forms 1099-NEC or W-2 for a prior year. Also, do not include amounts considered to be subject to a substantial risk of forfeiture for purposes of section 409A. The amount reported in Box 12 using code Z is also reported in Box 1.

AA—Generally not applicable to churches unless a church operates a 401(k) plan.

BB—Report designated Roth contributions under a section 403(b) salary reduction agreement. Do not use this code to report elective deferrals under code E.

DD—The Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health plan. IRS Notice 2011-28 provided relief for smaller employers filing fewer than 250 W-2 forms by making the reporting requirement optional for them until further guidance is issued by the IRS. The reporting under this provision is for information only; the amounts reported are not included in taxable wages and are not subject to new taxes.

EE—Generally not applicable to churches.

FF– Use this code to report the total amount of permitted benefits under a QSEHRA. The maximum reimbursement for an eligible employee under a QSEHRA for 2024 is $6,150 ($12,450 if it also provides reimbursements for family members). Report the amounts of payments and reimbursements the employee is entitled to receive under the QSEHRA for the calendar year, not the amount the employee actually receives. For example, a QSEHRA provides a permitted benefit of $3,000. If the employee receives reimbursements of $2,000, report a permitted benefit of $3,000 in Box 12 with code FF.

Box 13.

Check the appropriate box.

Statutory employee. Churches rarely if ever have statutory employees. These include certain drivers, insurance agents, and salespersons.

Retirement plan. Mark this checkbox if the employee was an active participant (for any part of the year) in any of the following: (1) a qualified pension, profit-sharing, or stock bonus plan described in section 401(a) (including a 401(k) plan); (2) an annuity contract or custodial account described in section 403(b); (3) a simplified employee pension (SEP) plan; or (4) a SIMPLE retirement account.

Third-party sick pay. Churches generally will not check this box.

Box 14.

This box is optional. Use it to provide information to an employee. Some churches report a church-designated housing allowance in this box. The IRS uses Box 14 for this purpose per IRS Publication 517, but this is not a requirement.

TAX TIP: The IRS has provided the following suggestions to reduce the discrepancies between amounts reported on Forms W-2, W-3, and Form 941: First, be sure the amounts on Form W-3 are the total amounts from Forms W-2. Second, reconcile Form W-3 with your four quarterly Forms 941 by comparing amounts reported for: (1) Income tax withholding (Box 2). (2) Social Security and Medicare wages (Boxes 3, 5, and 7). (3) Social Security and Medicare taxes (Boxes 4 and 6). Amounts reported on Forms W-2, W-3, and 941 may not match for valid reasons. If they do not match, you should determine that the reasons are valid. The Social Security Administration will issue an inquiry notice when these amounts do not match.

 

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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