Some legal developments actually bring smiles to pastors' faces. Within the last several months, two court cases and a clarification of taxing regulations have favored pastors and churches.
Self-employment tax relief
When the self-employment tax rate increased from 13.02 percent in 1989 to 15.3 percent in 1990, pastors (considered self-employed for social security purposes) stood to part with an additional 2 percent of their income.
The good news is that a significant change in the self-employment tax took effect on January 1, 1990. Clergy and other self-employed persons are now permitted a deduction of half their self-employment tax for both income tax and self-employment tax purposes. Previously, the deduction appeared to be allowed for only one of the taxes, as some IRS publications even stated. Late in 1989, however, the IRS chief counsel's office confirmed the dual deductions, and IRS materials in 1990 reflect this decision.
The reason for the dual deductions is "to achieve parity between ...1