Basic Taxation of Religious with 2012 Update

As 2012 gets underway, it's time to review the many tax changes that will come into effect in this year's filing season. Although the religious order is exempt from taxation, members of a religious order are taxable like every other citizen. Religious may have taxable income coming from several sources. Its taxation depends on the source, amount and type of income.

Religious working within the church remit their salary to their religious order. By doing this, they may qualify for the complete exemption of their compensation from taxation under Revenue Ruling 77-290. However, it is important to meet specific criteria for the exemption of this income from taxation. Namely, the person must be a member of a religious order with the vow of poverty, they must be working for 'another entity of the supervising church,' and they must remit their income to the order.

Religious working for non-Catholic employers receive compensation which is generally taxable. However, because the income is given over to the order, religious are eligible for a charitable contribution tax deduction, for up to 50% of their adjusted gross income. There has been increased action of the IRS in examining these returns in the last several years. It is important to have appropriate documentation on hand so that if the return is examined, there is sufficient documentation on hand to sustain the deduction.

Self-employed members receive compensation as spiritual directors, counselors, consultants, artists, etc. This compensation is subject to self-employment tax and income tax. A distinction must be made between those who are self-employed and taxable, and those (described above) who are working for the order and are not taxable. Those with self-employment income over $400 must pay self-employment tax.

Patrimony Income: Income from interest and dividends from patrimony of the members is also subject to taxation. Often the level of interest and dividends is low enough that individual members are not required to pay taxes.

In the 2011 tax year, no tax is due for a single person under 65 if income is below $9,500; or for a single person over 65 if income is below $10,950. Those who are required to pay taxes generally itemize to take advantage of the charitable contribution deduction and other deductions.

As usual, there are tax changes this year, these include:

- Filing deadline is April 17, 2012 for 1040s
- Taxpayers now use new Form 8949 to report capital gain and loss transactions.
-  AMT limit is $48,450 for singles, up from $47,450.
-  In 2011, eligible self-employed individuals can use the self-employed health insurance deduction to reduce their income tax liability.
-  Starting in 2011, the additional tax on distributions from a health savings account (HSA), not used for qualified medical expenses, increases from 10 percent to 20 percent.
-  Any United States person who has a financial interest in or signature authority or other authority over any financial account in a foreign country must file the FBAR on form TD F 90-22.1.
-  Original returns are considered by postmark date. But the date for amendments is the date of receipt by the IRS.

For more information on this topic, February's webcast will discuss the preparation of the tax return for religious with taxable income, including an update on new applicable tax legislation. May's webcast will be on the Obligations and Rights of Leadership in Religious Institutes.

 Basic Taxation of Religious
February 21, 2012
Rights and Obligations of Leadership
May 15, 2012

Social Media, Religious and the Law
August 21, 2012

Time: Tuesdays, 2:00 pm ET, 11:00 am PT
For more Information and to Register
Format: Live, On-Demand or CD-ROM
Cost: $65 for Live or On-Demand; $75 for CD-ROM

Recorded Webcasts: Not available for a webcast? You can register to view it On-Demand or on CD-ROM, go to

An On-Demand webcast is available for those who are unable to attend live. It is generally available within 48 hrs after the live webcast and may be view at your convenience over a several month period. The program can be downloaded or viewed on the web. (More environmentally friendly than the CD-ROM below)
In addition, webcasts are also offered on CD-ROM. This format is especially helpful for those without access to high speed internet. CD-ROMs are shipped a few weeks after the webcast.
Please let me know if I can be of assistance to you or your organization.

Amy Hereford

*A webcast is a seminar delivered over the internet.

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