While no one should ever hide income, there are several items that can legitimately be excluded from taxable income for ministers. One of the major items excludable from taxable income is contributions to the Ministers’ Retirement Plan. Contributions made by the church on behalf of the minister are not required to be reported at all on Form W-2. In addition, amounts contributed to the retirement plan by a salary reduction agreement are also not includible in Box 1 on the W-2 form as wages. However, on Form W-2 the “retirement plan” box should be checked on line 13. In addition, any amount contributed by salary reduction agreement should be reported in Box 12 of the W-2 form, using the code “E”. For example, if a minister reduced his salary by $5,000 to make contributions to his retirement account, that amount would not be included in Box 1 of the W-2, but “retirement plan” would be checked in Box 13 and Box 12 would report “E – $5000.00.”
Additional items excluded from reportable taxable income include group term life insurance premiums for policies up to $50,000, fringe benefits (medical insurance, disability insurance, etc.), qualified reimbursement of moving expenses, business expense reimbursement under an accountable plan, and the minister’s housing allowance (not considered as income but is taxable for self-employment taxes). None of the above-mentioned items should be included in Box 1 of the W-2 form. Keep in mind that non-ministerial employees do not receive the housing allowance benefit. If the church pays the housing of the employee, it is still counted as reportable income. Additionally, retirement plan contributions made by a salary reduction agreement for non-ministerial employees are excluded from their reportable income for tax purposes, but must be included in their income for Social Security and Medicare purposes.