Foregoing a Full Salary and Clergy Taxes

How clergy taxes apply when pastors decline part of their agreed salary.

Last Reviewed: January 4, 2025

Q: Our church agreed to pay our pastor a salary of $60,000 for 2013. Because of financial pressures our church is experiencing, our pastor is only accepting half of the agreed-upon salary. Is he taxed on the full salary of $60,000 even though he has declined to accept it, or is he taxed only on the salary that he actually receives?


This question touches on important principles related to clergy taxes, specifically the constructive receipt doctrine. Let’s explore this concept and its implications in greater detail.

What is the constructive receipt doctrine?

The constructive receipt doctrine, as defined by Treasury Regulation 1.451-2(a), specifies:

Income although not actually reduced to a taxpayer’s possession is constructively received by him in the taxable year during which it is credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time, or so that he could have drawn upon it during the taxable year if notice of intention to withdraw had been given.

This means income is taxable even if it is not physically received, provided it is accessible or available to the taxpayer without restrictions.

What does case law say about refusing salary?

Courts have issued varying rulings regarding salary refusals and taxable income:

  • Some courts have held that employees must include refused salary as taxable income.
  • Others have ruled the opposite under specific circumstances.

The landmark case of Giannini v. Commissioner, 129 F.2d 638 (9th Cir. 1942), is a key example. In this case, a corporate president refused $1.5 million of his compensation, suggesting the company use the funds for a worthwhile purpose. The court concluded:

The taxpayer did not receive the money, and … did not direct its disposition. What he did was unqualifiedly refuse to accept any further compensation for his services with the suggestion that the money be used for some worthwhile purpose. … In these circumstances we cannot say as a matter of law that the money was beneficially received by the taxpayer and therefore subject to the income tax provisions.

However, the court distinguished this case from others where the taxpayer exerted control over the refused salary, such as directing its use. These distinctions are critical in determining taxability.

How does the IRS view salary refusals?

The IRS has cautioned that the treatment of refused salary “depends on the facts and circumstances of each case” (IRS Notice 2001-69). For instance:

  • If the employee refuses salary but leaves the amount available to the employer without specifying its use, it may still be considered taxable income.
  • If the employee unconditionally refuses the salary and relinquishes all control over it, it may not be taxable.

Consulting a tax professional is essential in these cases to ensure compliance with IRS rules.

FAQs: Clergy Taxes and Salary Refusals

1. Is a pastor taxed on a salary they refuse to accept?

It depends on whether the salary was constructively received. Taxability hinges on the facts and circumstances of the refusal.

2. What happens if the pastor directs the refused salary to a specific use?

If the pastor exerts control over the funds, the salary may be considered constructively received and taxable.

3. How can churches handle salary refusals to avoid tax issues?

Churches should document the refusal and consult a tax professional to ensure the arrangement aligns with IRS regulations.

4. Should pastors who refuse salary consult a tax adviser?

Yes. Professional advice ensures compliance with IRS rules and minimizes the risk of penalties.

In summary, clergy taxes related to salary refusals depend on the unique facts of each situation. Pastors and churches should seek professional advice to ensure compliance and avoid unintended tax consequences.

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

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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