Clergy Taxes

Filing as an employee or self-employed

Internal Revenue Manual update MT 5(10)00-2

The IRS has been concerned for a number of years with the problem of persons reporting their income taxes as self-employed when in fact they are more properly characterized as employees.

The IRS and General Accounting Office are conducting a joint study to determine whether 1099 forms (annual information returns issued to self-employed workers) may reveal workers more properly classified as employees. In particular, the IRS noted recently that the study of 1099 forms has revealed a "universe" of self-employed persons who received all of their business income (reported on Schedule C of Form 1040) from a single employer.

The IRS is in the process of determining whether such a relationship is an indication of a misclassification of employees as self-employed. This is a significant issue for clergy, many of whom continue to report their federal income taxes as self-employed and who receive a 1099 form each year from their church. In many cases, all of the Schedule C earnings of such clergy is attributable to their employing church, and is reported on a single 1099 form.

If the IRS study concludes that the receipt of a single 1099 form reporting self-employment income from a single source indicates that a worker is improperly reporting his or her federal income taxes as self-employed, then self-employed clergy may wish to re-evaluate their status for federal income tax reporting purposes.

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