Income

• Clergy members fill their compensation in wages on form 1040, line 7. Adjusted gross income is generally higher for employee clergy due to the way deductions are handled. For employees, business expenses are deducted from total adjusted gross income, but self-employed pastors deduct business expenses while calculating gross income.
  
  

Deductions

• Employees may deduct business expenses if they are not reimbursed. Employees can also itemize their deductions, and their expenses are more than 2 percent of their adjusted gross income. Self-employed pastors may deduct business expenses whether or not they itemize and don't have the 2 percent rule.
  
  

Determining Status

• Sometimes it may not be obvious what you're considered. Generally, if you are considered an employee of the church, the church will send you a W-2 form. If you are considered self-employed, you'll get a 1099 form. If you have the option to claim as either, you are usually better off claiming as an employee. In addition to the way income and deductions are handled, self-employed individuals are statistically more likely to be audited.