Hiring a new pastor is a big deal. Once they are hired, the first things that need to be established are their salary, health insurance, and housing benefits. A pastor’s salary should be able to cover his or her basic needs. It shouldn’t be extravagant, but it should be enough to allow the pastor to live comfortably.
The content of this page is intended for general information only and should not be construed as professional advice regarding the use of any particular tax or financial technique. If you need advice specific to your circumstances, contact a qualified tax advisor.
What Is A Fair Salary To Pay Pastors?
A cash salary that meets the physical needs of the family is a biblical principle. As the Apostle Paul writes in 1 Timothy 5:17, “The elders who direct the affairs of the church well are worthy of double honor, especially those whose work is preaching and teaching” (NIV). An appropriate salary package for your pastor allows them to preach and teach at their church freely without concern for the financial needs of their family or household.
A cash compensation package is how many churches pay pastors for their work. The salary portion of the package is based on the church budget, the length of the pastor’s tenure, and the pastor’s performance.
Based on pastor salary data from March 2021, the average pastor in the United States makes just over $50,000 per year. Of course, this can vary significantly depending on the cost of living in your region and the size of your congregation. The highest-earning clergy members receive a salary of $79,000 per year or more while their peers in the bottom 10% of earners make approximately $26,000 per year.
Another key part of pastor compensation is housing. A housing allowance is a set amount of money that has been set aside to cover the cost of housing. This is a great way to ensure that your pastor’s compensation structure is in line with the cost of living in the community.
The allowance is a tax-free income paid to a pastor to help cover the cost of buying or renting a house in the area where they serve. Many churches in the U.S. pay a housing allowance to their pastors because it lowers their taxable income from their job and saves them money on taxes.
Insurance, Retirement Plan, And Other Pastor Benefits
Pastors may think they’re covered under the church’s health insurance, but many churches only offer a very basic plan that barely covers anything. A good plan will include annual checkups and wellness visits for your pastor and their spouse.
The pastor’s family medical plan should cover the pastor, their spouse, and their children. Your plan should also cover medical expenses that are not covered by Medicare or Medicaid. If your church has a paid staff, the plan should cover your staff as well.
In addition to medical coverage, your pastor should be protected from the unexpected by having disability insurance. Disability insurance is income replacement insurance that provides funds if someone is unable to work because of an accident or illness.
Many churches don’t have any sort of program where they invest for their pastor’s future, so pastors have to plan for their own retirement. You can create a better future to compensate your pastor for their years of service by offering a retirement plan.
Pastors should be reimbursed for travel, continuing education, and publication of religious materials. The IRS does allow for a few expenses to be written off as charitable deductions. These include the cost of transportation and food. Your pastor’s compensation package can also include paid vacations, personal time off, and parental leave.
Pastor Income Tax And Social Security Considerations
Ministers are employees for federal income tax reporting purposes, but they are self-employed for Social Security purposes. This is because they are considered to be in business for themselves. As self-employed workers, ministers pay the Self-Employment Contribution, which is the equivalent of the Social Security and Medicare taxes other self-employed people pay.
The church is not a business and cannot pay the SECA tax for its pastor. The pastor is not a business owner; the pastor is an employee of the church and receives a salary from the church.
Clergy members have a special option under the law to declare a religious objection to collecting public benefits. In other words, a pastor is allowed to opt out of Social Security. While this is typically done for tax purposes, it is considered an act of ministry that requires a lifelong commitment. You can’t take back this decision, so speak with a tax professional about the potential tax advantages (and pitfalls) of choosing this option.
Sample Pastor Compensation Worksheet
The compensation you offer your ministry leadership doesn’t look much different from the average nonprofit employee’s compensation. Besides special tax circumstances for clergy members, the most significant difference is the home allowance.
You can use this sample pastor compensation package worksheet to roughly determine some of the cost planning associated with paying your pastoral employees.