I am a full-time pastor who is considered dual status for tax purposes. In the past I have been given a certain amount for salary of which I give back more than 10 percent in tithes. In the process of this money coming to me from the church and going back to the church again, the money gets taxed. Then I claim it as a charitable contribution. However, is it possible to simply turn down that amount and not be paid it by the church? In other words, if I was told I would be paid $50,000 for 2013, but I told the church to just pay me $45,000 so I wouldn’t have to pay taxes on that $5,000. I simply wouldn’t take it. Is anything wrong with this?
This arrangement does not reduce taxable income by the amount of the salary that is refused. Under the so-called “constructive receipt” doctrine of tax law, salary reductions do not reduce taxable income unless specifically allowed by the tax code (i.e., housing allowance, 403b contributions). The point is that income is “realized” by a taxpayer, and therefore represents taxable income, if it is available to him or her and could be received if requested. The legal authority to receive the stated salary makes it taxable, even if the pastor decides to reduce the amount he receives by the amount of the contribution he wants to make to his church.
Editor’s note: The above answer only touches the surface of a very complex tax issue. For additional insights, see “Refusal to Accept Full Salary” in chapter 4 of the annual Church & Clergy Tax Guide.
