http://www.irs.gov/taxtopics/tc417.html
Topic 417 - Earnings for Clergy
For income tax purposes, a licensed, commissioned, or ordained minister is generally treated as a common law employee of his or her church, denomination, or sect. There are, however, some exceptions such as traveling evangelists who may be treated as independent contractors. If you are a minister performing ministerial services, you are taxed on wages, offerings, and fees you receive for performing marriages, baptisms, funerals, etc.
The services you perform in the exercise of your ministry are generally subject to self-employment tax (social security and Medicare taxes). See Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers, for limited exceptions from self-employment tax.
Even though, for social security tax and Medicare tax purposes, you are considered a self-employed individual in performing your ministerial services, you may be considered an employee for income tax or retirement plan purposes. For income tax or retirement plan purposes, some of your income may be considered self-employment income and other income may be considered wages. Depending on all the facts and circumstances, under common-law rules you are considered either an employee or a self employed-person. Generally, you are an employee if the church or organization has the legal right to control both what you do and how you do it, even if you have considerable discretion and freedom of action. For more information about the common-law rules, see Publication 15-A (PDF), Employer's Supplemental Tax Guide. If you are employed by a congregation for a salary, you are generally a common-law employee and income from the exercise of your ministry is considered wages for income tax purposes. However, amounts received directly from members of the congregation, such as fees for performing marriages, baptisms, or other personal services, are considered self-employment income.
If you itemize your deductions, you may be able to deduct certain unreimbursed business expenses related to your services as a common-law employee on Form 1040, Schedule A, Itemized Deductions. You may need to fill out Form 2106 (PDF), Employee Business Expenses, and attach it to your Form 1040 (PDF), U. S. Individual Income Tax Return. Refer to Topic 514 for information on Employee Business Expenses, and Topic 508 for information on the 2% of adjusted gross income limitation. For your self-employment income (the offerings or fees you receive for performing marriages, baptisms, funerals, etc.), use Form 1040, Schedule C (PDF), Profit or Loss From Business, or Form 1040, Schedule C-EZ (PDF), Net Profit From Business, to report these earnings and related expenses.
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