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The Top 10 Legal and Tax Issues for Women in Ministry

By Richard R. Hammar

Enrichment Journal Spring 1996

There are several legal and tax issues that confront women in ministry. This article will address 10 of the most important issues.

1. Who Is A Minster For Tax Purposes?

Women serve in a wide variety of ministerial positions, including senior pastors, associate pastors, youth and children’s pastors, music directors, education directors, evangelists, missionaries, and educators. Some serve in full-time ministry positions, while others are part-time. It is important for women ministers to determine whether or not they qualify as "ministers" for federal tax purposes. This is an important question, since there are four special tax rules that apply to ministers in the exercise of their ministry:

Who is a minister for federal tax purposes? According to the IRS, a "minister" is someone who is ordained or licensed (in the Assemblies of God, being certified also counts), who conducts religious worship, performs "sacerdotal functions" (such as weddings, funerals, baptisms, communion), has management-level responsibility in her church, and is considered to be a spiritual leader.

Example: Mary serves as full-time music director in her church. While she has a degree in sacred music from a church college, she is not a credentialed minister. Mary is not a minister for federal tax purposes, and therefore is not eligible for a housing allowance, and her wages are subject to withholding of both income taxes and FICA taxes.

2. Am I An Employee Or Self-Employed For Tax Purposes?

It is important for women ministers to recognize that they have a "dual" tax status. For social security, they always are self-employed with respect to the exercise of their ministry. But for income tax reporting purposes, they ordinarily will be employees. This means that in most cases women ministers will receive a W-2 from their employer, report their ministry salary on line 7 of Form 1040, and use Schedule SE to compute and report their self-employment taxes.

Some women ministers will be self-employed for income tax reporting purposes. A common example is an unincorporated evangelist. Also, women ministers who serve in local churches usually are self-employed with regard to services they perform directly for members, such as weddings and funerals. Fees received for such services directly from members should be reported as self-employment income on Schedule C (Form 1040).

3. Taxable Income

The concept of taxable income is a broad one, and includes many items received by women ministers, including the following:

Tip: Some fringe benefits are not taxable. One example is employer-provided dependent care. If your employing church has a child care facility, and it allows your child or children to enroll at no charge, you do not have to report the value of the child care as taxable income if certain conditions are met. This benefit cannot exceed $5,000 annually.

4. Performing Marriage Ceremonies

The solemnization of marriages is one of the most sacred duties of a minister. Women ministers should be familiar with the following three issues before agreeing to perform a marriage:

1. Am I legally authorized to perform a marriage in my state?

Every state authorizes ministers to perform marriages, but state laws vary widely in defining those "ministers" who are authorized to do so. Some states require that the minister be ordained, others require that the minister be either licensed or ordained, and others omit any specific reference to either licensure or ordination.

2. Am I legally qualified to perform a marriage in another state?

A related question is the authority of a minister to perform a marriage in another state. To illustrate, assume that Terry is a minister in Texas, and is asked by a friend to officiate at a marriage ceremony in Ohio. Does Terry have the legal authority to do so? The answer to this question will depend upon the law of the state in which the marriage will be performed. In many states, any minister is eligible to perform a marriage regardless of the minister’s state of residence. Other states have enacted laws authorizing nonresident ministers to perform a marriage within the state if they are legally authorized to do so in their state of residence.

Tip: Ministers should not agree to perform a marriage in another state without first confirming that they are legally authorized to do so.

3. Have I Complied With All Of The Legal Requirements For A Valid Marriage?

Every state has enacted legislation prescribing various requirements that must be satisfied in order for a lawful marriage to occur. While there is much variation among the states, some requirements are common. These include the following:

(1) The couple must be legally capable of marrying. Each state prescribes several categories of persons who are not permitted to marry (for example, because of age, relationship, or mental disability), and it is essential for a minister to be familiar with these restrictions.

(2) Most states forbid a minister from performing a marriage unless the couple has obtained a marriage license. Ministers should be familiar with the license requirements under local law, and share this information with engaged couples. Ministers may be criminally liable for marrying couples with expired licenses. Well in advance of a marriage, the minister should request a copy of the marriage license, and ensure that it does not expire prior to the wedding date.

Tip: Many counties publish pamphlets for engaged couples that summarize the license requirements. It is a good practice for ministers to have a supply of these publications on hand.

(3) Most states require ministers to complete a marriage certificate after the solemnization of a marriage, and return it to the same government office that issues marriage licenses. A second certificate often is obtained, and is given to the married couple. State law generally prescribes the deadline for filing marriage certificates, and the penalty for not doing so.

5. The Clergy-Penitent Privilege

Every state has a law making certain communications to ministers "privileged." This means that neither the minister nor the "penitent" can be forced to testify in court (or in a deposition or certain other legal proceedings) about the contents of the communication.

Not every communication made to a minister is privileged and thereby protected from disclosure. The typical statute applies only if all of the following four requirements are met:

(1). A communication.

A communication includes verbal statements, but it also may include nonverbal acts that are intended to transmit ideas. Mere observations generally are not considered to be communications.

(2). Made in confidence.

This generally means that there are no other persons present besides the minister and counselee who can overhear the communication, and that there is an expectation that the conversation will be kept secret.

(3) To a minister.

Statements to noncredentialed church staff members do not qualify. Statements made to a noncredentialed female music minister, for example, would not be privileged.

(4) Acting in professional capacity as a spiritual adviser.

Certainly there can be no expectation of confidentiality, and therefore no privilege, unless a statement is made to a minister acting in such a capacity. Many, perhaps most, of the communications made to ministers are not made to them in their professional capacity as spiritual advisers. They are made by church members and nonmembers alike at church functions, following church services, in committee rooms, in hospital rooms, at funeral homes, in restaurants, on street corners, and at social and recreational events. Such communications ordinarily are not privileged, since other persons typically are present, and it is difficult to conclude that the "counselee" sought out the minister in his or her professional capacity as a spiritual adviser. This is not always the case, however, since it is possible that such conversations, even if they begin as a purely social exchange, could become spiritual in nature. In other words, by the end of a conversation the "counselee" may well be communicating with the minister because of the minister’s status as a spiritual adviser. There is no reason why such a conversation should not be privileged, assuming that the other requirements are satisfied.

Tip: The applicability of the clergy-penitent privilege can be enhanced if a minister simply asks a person during a counseling session, "Are you speaking to me as a minister in my professional capacity as a spiritual adviser?" If the counselee responds affirmatively, then there is little doubt that the courts will conclude that the privilege applies. If the minister is ever called to testify in court concerning the conversation, this verbal confirmation should resolve most questions regarding the applicability of the clergy-penitent privilege.

6. Counseling

Female ministers are often called upon to counsel members of the congregation. There are several legal issues that arise in this context, including the following:

(1) Malpractice.

The courts have not found ministers guilty of malpractice on the basis of the content of their counseling, but rather for inappropriate physical conduct. As a result, it is unlikely that a ministerial counselor will be successfully sued on the basis of the nature of her counseling. However, she may be liable for inappropriate physical contacts with a counselee.

(2) Child abuse reporting.

Ministers are mandatory reporters of child abuse in about half the states. If their counseling goes beyond "pastoral counseling" at church, they are likely to be regarded as a mandatory child abuse reporter in every state. It is important for ministers who engage in counseling to be familiar with the definition of child abuse under state law, the definition of mandatory reporters, and the effect of the clergy-penitent privilege on the duty to report.

(3) Seduction of counselees.

Many male ministers have been sued as a result of inappropriate physical contact with counselees. While no case has involved female ministers engaging in such behavior, the risk should not be ignored. Female ministers should not counsel without implementing the same kinds of "boundaries" that many male ministers now use. These boundaries not only reduce the risk of inappropriate behavior, but perhaps more importantly, they serve as a deterrent and reduce the risk of false accusations. They include some or all of the following:

Key point: Another very important consideration in church counseling is the concept of confidentiality. Counselors (and the church) can be sued if they intentionally or inadvertently disclose confidential information to third parties. Obviously, this can occur in several ways—for example, the counselor directly communicates the information, or the counselor’s counseling notes are accessible to church staff. Counselors must understand the importance of maintaining confidences shared with them. One possible exception relates to child abuse reporting. A legal duty to report known or reasonably suspected cases of child abuse generally overrides the duty to maintain confidences (at least for persons who are required to report under state law).

7. Reporting Child Abuse

Child abuse is of epidemic proportion in our country. Ministers often learn of incidents of abuse in the course of counseling, or from reports they receive from nursery or youth workers. It is essential for ministers to understand clearly their responsibilities under state law to report known or reasonably suspected incidents of abuse. In many states, ministers are "mandatory reporters," meaning that they can be criminally liable for failing to report. Several states now permit a minister who is a mandatory child abuse reporter under state law to be sued for money damages by a victim of child abuse who discovers that the minister was aware of the abuse but did not report it.

A number of courts have rejected the defense made by some ministers that they failed to report abuse because they wanted to deal with the problem "within the church" as a matter of discipline. Several states excuse ministers from the reporting obligation if they learn of child abuse in the course of a privileged communication. Be sure to check your state law at least a few times each year, since this is an area of law that changes often.

8. Fiduciary Duties

Women ministers who serve on their church board, or on the board of any other for-profit or nonprofit organization, are subject to the following two fiduciary duties:

(1) The duty of care.

Church board members have a fiduciary duty to use reasonable care in the discharge of their duties, and they may be personally liable for damages resulting from their failure to do so. This duty commonly is referred to as the "prudent person rule" or the "duty of due care." Lawsuits against nonprofit directors for breach of their "duty of care" are still rare. Directors of churches and religious organizations can reduce the risk of liability even further by (a) attending all of the meetings of the board and of any committees on which they serve; (b) thoroughly reviewing all interim and annual financial statements and reports, and seeking clarification of any irregularities or inconsistencies; (c) affirmatively investigating and rectifying any other problems or improprieties; (d) thoroughly reviewing the corporate charter, constitution, and bylaws; (e) dissenting from any board action with which they have any misgivings, and insisting that their objection be recorded in the minutes of the meeting; and (f) resigning from the board if and when they are unable to fulfill these duties.

(2) The duty of loyalty.

Directors of nonprofit corporations have a fiduciary duty of loyalty to the corporation. This duty generally requires that any transaction between the board and one of its directors be (a) fully disclosed, (b) approved by the board without the vote of the interested director, and (c) fair and reasonable to the corporation. In most cases, a director breaches the duty of loyalty only through some secret or undisclosed interest in a transaction with the corporation.

9. Discrimination Based On Sex Or Pregnancy

Title VII of the federal Civil Rights Act of 1964 prohibits any employer having at least 15 employees and engaged in interstate commerce from discriminating against any employee or applicant for employment on the basis of sex or pregnancy. Churches, and other religious employers, are permitted to discriminate in their employment decisions on the basis of religion, which includes religious-based moral standards. However, they must do so consistently, and not in a way that discriminates against a group of employees on account of sex or pregnancy. To illustrate, a church that is covered by Title VII is free to adopt an employment standard barring employees from engaging in premarital sex. But if this rule is enforced only against women who become pregnant, it violates Title VII.

There is an important exception to the Title VII. The courts have consistently ruled that the first amendment guaranty of religious freedom prevents them from applying civil rights laws to the relationship between a church and a minister. Therefore, a court would likely dismiss a claim by a woman minister alleging that a church is applying its employment standards in a manner that unfairly discriminates against female or pregnant employees. However, such a claim brought by a noncredentialed female employee might prevail.

10. Works Made For Hire

Many women ministers have composed music or written books or articles in their church office during office hours. What often is not understood is that these ministers do not necessarily own the copyright in the works they create. While the one who creates a work generally is its author and the initial owner of the copyright, the Copyright Act specifies that "in the case of a work made for hire, the employer or other person for whom the work was prepared is considered the author...and, unless the parties have expressly agreed otherwise in a written instrument signed by them, owns all of the rights comprised in the copyright."

The copyright law defines "work made for hire" as "a work prepared by an employee within the scope of his or her employment." There are two requirements that must be met: (1) the person creating the work is an employee, and (2) the employee created the work within the scope of his or her employment. The "scope of employment" requirement generally means that the work was created during regular working hours, on the employer’s premises, using the employer’s staff and equipment. This is often a difficult standard to apply. As a result, it is desirable for ministers to discuss this issue with the church board to avoid any potential misunderstandings.

The Copyright Act allows an employer and employee to agree in writing that copyright ownership in works created by the employee within the scope of employment belongs to the employee. However, ifthe church chooses to renounce its legal rights in the book, and transfers the copyright back to the employee, then it is relinquishing a potentially valuable asset that may produce royalty income for several years. Few if any churches would attempt to "value" the copyright and report it as additional taxable compensation to the employee, and as a result it is hard to avoid the conclusion that such arrangements result in "inurement" of the church’s assets to a private individual. The legal effect is to jeopardize the church’s tax-exempt status. This risk is remote, but the consequences would be so undesirable that it should be taken seriously. The risk of inurement can be minimized if not avoided if the church retains the copyright in works made for hire, and pays a "bonus" or some other form of taxable compensation to the author.

Richard Hammar, J.D., LL.M., CPA, serves as legal counsel to The General Council of the Assemblies of God. A graduate of Harvard Law School, he is the author of numerous books on legal and tax issues for churches and pastors, and publishes two newsletters. This article is excerpted from his bimonthly Church Law & Tax Report, copyright 2000.