Q&A: What Are the Consequences for Pastors Who Don’t File Tax Returns?

A minister on staff at our church has never filed a federal tax return. What are the consequences?

There are ministers who have never filed a federal income return, and it is easy to understand why. Some ministers believe they are exempt from taxation. Others are not familiar with the exemption of clergy wages from income tax withholding and the need to either elect voluntary withholding or prepay taxes using the estimated tax procedure (Form 1040-ES). Either way, a substantial tax debt can be incurred. Here is a summary of the consequences:

1. If you don't file your return by the due date (including extensions), you may have to pay a failure-to-file penalty. The penalty is usually 5 percent for each month or part of a month that a return is late, but not more than 25 percent. The penalty is based on the tax not paid by the due date (without regard to extensions).
2. If your failure to file is due to fraud, the penalty is 15 percent for each month or part of a month that your return is late, up to a maximum of 75 percent.