Ministry Licensing

Ministry Licensing at The Austin Stone

Licensing vs ordination

Licensing

Licensing reflects the church’s affirmation and attestation that a person, regardless of gender, is performing or is developing into qualified ministry service at The Austin Stone or in preparation for being sent to another church or church plant.
Licensing as a minister is also an administrative designation that makes the individual eligible to elect to claim certain statuses with the IRS for income and employment tax purposes. As such, the criteria for licensing at The Austin Stone honor the qualifications of “minister for tax purposes” that the IRS sets forth. The Austin Stone has designated certain positions that are eligible for ministry licensing.
In any case, an individual’s reason for seeking licensure should be driven primarily by theological reasons rather than economic ones. It is not necessarily true that a church worker will be "better off" by becoming a minister for tax purposes.

For clarity, ministry licensing by The Austin Stone does not qualify a person to officiate a wedding.

Ordination

Ordination is, by contrast, the public recognition of confirmation in both qualification and calling to the office of deacon or elder in service to the local body of The Austin Stone. Ordination follows a process of preparation, examination, and confirmation. It is not necessary to be ordained to be licensed, nor is required to be licensed in order to be ordained. These are two distinct things.

Who we license

The Austin Stone will consider a request for licensing if the individual, regardless of gender, is engaged in the work of pastoral ministry in a context related to The Austin Stone and would qualify under the definition of “Minister” under IRS regulation Sections 107 and 1402, Treasury Regulation 1.1402(c), and defended under the Tax Court precedent of the Knight v. Commissioner (1989). ( See Clergy Tax Rules.., thetaxadviser.com for a summary)

As a summary, an individual qualifies for tax status as a minister if the individual:

  • Is ordained, commissioned, or licensed;
  • Is recognized by the religious body as a spiritual leader;
  • Conducts religious worship;
  • Administers sacraments; and
  • Is involved in the control, conduct, or maintenance of a religious organization.

In Knight, the court stated that the first factor must be met and the other factors should be weighed against the facts and circumstances of each taxpayer to make a determination.

So, to satisfy the first factor in lead to the others, at The Austin Stone, ministry licenses will be evaluated on the following criteria:

  1. The individual is engaged in the work of pastoral ministry in a context related to The Austin Stone
  2. And has been confirmed in character qualification through the Austin Stone character qualification assessment and ongoing engagement in biblical community
  3. And understands and agrees with the theological reasoning and implications for becoming licensed as a minister
  4. And understands that they are responsible for determining and properly reporting their own tax status to the IRS according to the tests the IRS uses to determine if a taxpayer is a minister for tax purposes (See notes below)

Licensed by another church?

If an individual has already been licensed by another like-minded church body, Austin Stone is agreeing with the prior confirmation and confidence that the previous church leadership has had for the individual in proving himself qualified for ordination by Austin Stone, or for a minister to serve in preparation for being sent to another church/church plant and considered for their ordination.

Interns and Residents

We do not license interns and residents. By the nature of participating in an internship or resident program being for the purpose of growing your character and skill in pastoral ministry, we cannot already confirm your qualification in this area without experience with you. 

How we counsel those who are seeking a ministry license

Before licensing, the individual should understand that the license will not automatically change any regulatory status, but opens up certain options. One is the "benefit" of having housing expenses excluded from federal income taxes. But with this benefit comes the obligation to pay employment taxes for all ministerial income as a self-employed individual. Thus tax rate for the individual is increased from only the employee’s share of taxes, to both the employee and employer’s share of those taxes.

After being licensed, there are now two decisions for the individual to consider:

Decision 1* - Whether to elect 'Minister' Status for tax purposes.

By becoming a minister, one will have the "benefit" of a housing allowance exclusion in computing their federal income taxes. On the other hand, the Social Security tax rate increases from 7.65% (the employee’s share of FICA taxes) to 15.3% (the self-employment tax). In other words, whether or not he or she will be "better off" for tax purposes depends on whether the housing allowance exclusion offsets the additional Social Security taxes. As a result, church workers should not necessarily assume that they automatically will be "better off" for tax purposes.

If you elect to become a minister for tax purposes,

  • Request housing allowance form from the Human Resources department
  • Complete next income tax return as "Minister for tax purposes", per Section 107 of the Internal Revenue Code 

Decision 2* - (If you say “yes” to Decision 1) Determine whether to opt-out of Social Security. 

Consider the implications of this decision, such as the fact that this is not simply an opt-out of paying taxes into the social security system, but also an opt-out of receiving any benefit from it. it will decrease or possibly eliminate any benefit from social security in the future. To qualify, an individual must work and pay taxes for “40 quarters”. Once qualified, the amount of any future distribution is calculated based on what was paid in.

One has two years after becoming licensed to make this election, it cannot be revoked, and it will always apply for any ministerial income your receive from now on.

If yes, then:

  • Fill out IRS form 4361
  • Send off to IRS
  • Note: Few ministers are able to meet the requirements for opt-out.

It is important to note that tax law does change. Before making these decisions check with Human Resources for possible updates to tax laws governing “Minister” designations and definitions. You may also need to consult with a tax advisor.

How we grant a ministry license

Two things are still needed to approve licensing.

  1. Validate that the licensee is eligible by IRS and church standards outlined above
  2. Counsel the licensee to help them understand the decisions to make and their implications
    1. On dual tax status as a licensed ministry
    2. On prospective decisions about Social Security and IRS form 4361, including reasoning why or why not to claim this exemption and our policy for tax defrayment if they decide not to op out

Our licensing process

  • Request licensing via your division head (your representative on the Executive Team, or XT) and the Human Resources Team.
  • The Human Resources Team confirms eligibility with your Division Head and, if applicable, your Department Leader. The HR Team will also discuss this content with you to help you in your decision-making, and then recommends you for licensing to XT.
  • XT approves based on the criteria above. At least two members of the XT are required for approval of ministry licenses.

  • Upon receiving the necessary approvals TAS will present a signed Certificate of Ministry License.


Q&A*

Q. Should a church ordain, commission or license someone so the church can designate a housing allowance for that person?

A. A church should not ordain, commission or license someone simply to make that person eligible for a minister’s housing allowance. Churches should ordain, license or commission clergy who qualify for and perform these roles in the church.

Q. How does the IRS decide if a taxpayer is right to claim to be a minister for tax purposes?

A. The IRS may use the "Wingo" test. The U.S. Tax Court approved this test in Wingo v. Commissioner, 89 T.C. 922 (1987). The court said that a person is a minister for tax purposes if all of the following questions can be answered "yes:"

  1. Is the person licensed, commissioned or ordained?
  2. Does the person perform sacerdotal functions?
  3. Does the person conduct religious worship?
  4. Does the person maintain and control a religious organization?

In Knight v. Commissioner, 92 T.C. 12 (1989), the U.S. Tax Court held that a licensed minister of the Cumberland Presbyterian Church was a minister for tax purposes. The court used a five-part balancing test called the Knight test.

In the Knight test one factor is not necessarily more important than another. In general, the IRS and the courts require that a minister be ordained, commissioned, or licensed, and then they apply a "balancing test" with respect to the other four factors.

  1. Is the person licensed, commissioned or ordained?
  2. Does the person perform sacerdotal functions?
  3. Does the person conduct religious worship?
  4. Does the person maintain and control a religious organization and/or does the person have management responsibilities in the church or denomination?
  5. Is the person considered to be a religious leader?

Other helpful resources

* These reference materials and Q&A are for informational purposes only and are not intended to act as an authority on tax law, or as tax advice and should only be used as a resource.

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