Can a Pastor Use Tithes for Salary or Personal Use?

Religious traditions encourage adherents to contribute a portion of their income, often called tithes, to their faith community. These contributions support the mission and operations of the religious organization. This article explores how these funds are managed and how religious leaders are compensated.

Defining Tithes and Church Assets

Tithes, traditionally representing a tenth of one’s income, and other offerings are voluntary financial contributions to religious organizations. Once contributed, these funds cease to be personal property; they become assets of the religious organization, dedicated to supporting its mission and operations.

Church funds support various activities, including ministry programs, facility maintenance, and operational expenses like salaries for staff, including pastors. Tithes are given to the church as an institution, not directly to an individual pastor for personal use. This principle ensures contributions serve the collective goals of the religious community.

Pastor Compensation Structures

Pastors are compensated from the church’s general operating budget, which includes tithes and other donations. This compensation is distinct from a pastor directly using tithes for personal expenses. Church leadership (e.g., a board of directors, elders, or a finance committee) determines and approves the pastor’s compensation package. This ensures compensation is established through official channels and is part of the organization’s approved financial plan.

Common forms of pastor compensation include a cash salary. A housing allowance, also known as a parsonage allowance, allows ministers to exclude a portion of their income designated for housing from federal income tax. This benefit can be provided through the rent-free use of a church-owned home or as a cash allowance for housing expenses. Beyond salary and housing, compensation packages often include benefits such as health insurance, retirement contributions, and accountable reimbursement plans for ministry-related expenses.

The decision-making process for pastor compensation involves reviewing the church’s overall budget, the cost of living in the community, and data from similar-sized congregations. These compensation elements are paid from the church’s overall income.

Financial Accountability in Religious Organizations

Financial management and oversight are important for religious organizations to maintain public trust and ensure responsible use of funds. Establishing clear financial policies, comprehensive budgets, and implementing internal controls are key practices. These measures help ensure that all church funds, including tithes, are utilized appropriately and transparently.

Church boards, finance committees, or other designated governing bodies oversee the organization’s finances. Their responsibilities include approving annual budgets, reviewing financial statements, and establishing policies for financial transactions. Internal controls, such as segregating duties so no single person controls financial processes, help prevent errors and detect fraud. For instance, different individuals should receive offerings, count funds, and make deposits.

Regular financial reporting to the congregation, including income and expense accounts and budget updates, fosters transparency. Annual audits, whether internal or external, build confidence in the church’s financial practices and identify areas for improvement. These practices help maintain donor trust and ensure compliance with organizational bylaws and charitable regulations.

Tax Treatment of Pastoral Income

A pastor’s compensation, received from the church, is subject to specific tax rules in the United States. Ministers often have a “dual-status” for tax purposes. They are generally considered employees for federal income tax purposes, with wages reported on a Form W-2. However, for Social Security and Medicare taxes, they are typically considered self-employed.

Churches are not required to withhold federal income tax from a minister’s paycheck, though ministers can arrange for voluntary withholding. Since self-employed for Social Security and Medicare, ministers pay self-employment tax (SECA tax), which covers both employee and employer portions. Ministers can deduct one-half of their self-employment tax as an adjustment to income.

A tax consideration for ministers is the housing allowance exclusion under Internal Revenue Code Section 107. This allows qualifying ministers to exclude from gross income for federal income tax purposes the fair rental value of a church-provided home or a designated housing allowance used for housing expenses. This exclusion does not apply to self-employment taxes; the housing allowance must be included when calculating the self-employment tax liability. Ministers may apply for an exemption from self-employment tax for religious or conscientious reasons, but not for economic reasons.