Clergy

If a member of the clergy is considered a "common law employee," the cleric's occupancy of a parsonage owned by the congregation and provided for the convenience of the congregation is not taxable as compensation. Likewise, if the congregation pays the costs of housing directly and not as a reimbursement to the clergy, the direct costs are not taxable. All housing allowances provided by the congregation to clergy are taxable as compensation, as cash is always taxable. The clergy may deduct directly related business expenses (such as the business use of the house) allowed on PA-40 Schedule UE, Allowable Employee Business Expenses.

If a member of the clergy is not a "common law employee" and is a sole proprietor who offers his services in a marketplace (i.e. to a nonexclusive, indefinite number of individuals or congregations), income is considered to be derived from a business or profession and is reported on PA-40 Schedule C, Profit or (Loss) From Business or Profession.