Housing Allowance for Pastor and W2

[ricrorr]

Hello - I'm a new pastor. I received a W2 from my church with my total wages. In a box (14) on the W2, I'm given the total of the housing allowance I received for 2017. The total in box 1 includes the dollars appearing in box 14. As example, I received a housing allowance of $2500 as a portion of my total compensation $40000. $40000 is in box 1 and $2500 is in box 14. When I enter these into TurboTax, my tax burden actually goes up based on the housing allowance, which doesn't seem right. My question is: should my church have included the $2500 in the $40000 or should I have received a W2 that said $37500 in box 1 and $2500 in box 14? Am I double counting the income in some way? Any help is appreciated. 

Richard 

[Tazz3L · Accepted solution]

A Clergy W-2 from a church should show Salary in box 1 and the housing allowance in box 14. If your salary is 37,500 and the housing allowance is 2,500 for a total compensation of 40,000. Box 1 is 37,500, Box 14 is 2,500.  You may need to ask your treasurer for a corrected W-2.

Turbo Tax then correctly asks you how much you spent on housing. If you spent 2,499, Turbo Tax will show $1 of "EXCESS ALLOWANCE" on line 7 of your 1040.  If you spent 3,000 on housing you will only benefit up to the 2,500 determined by your compensation package. It cannot be retroactively adjusted.

So if your actual housing expenses are 3,000+ then please have your governing board increase your housing allowance to reflect your actual expenses ASAP moving forward. From the church perspective this is not an increase in your compensation, it is a re-categorization such that your salary would then be 37,000 and your housing allowance 3,000.  It is a significant tax saving to use housing allowance to your advantage. 

In housing allowance expenses you can include: utilities, mortgage, maintenance, closing costs, repairs, rent, yard services, etc. 

In my denomination a church treasurer can call our regional office for assistance with the w-2, if she is confused or unclear.

Hope this is helpful to you.

[ricrorr]

Thank you. This is very, very helpful. I appreciate your kindness and time. Have a wonderful day!

[bchris79]

On this same scenario @Tazz3L on the w-2 screens turbo tax asks if 

a. pay self employment taxes on wages

b. pay self employment taxes on housing allowance

c. pay self employment taxes on wages and housing allowance

d. don't pay self employment taxes

which one is the correct one?

[Tazz3Lpcusa]

First of all, I am not an accountant.

The general rule is  "A minister who receives a housing allowance may exclude the allowance from gross income to the extent it’s used to pay expenses in providing a home." AND

From a helpful website: "The fair rental value of a parsonage or the housing allowance can be excluded from income only for income tax purposes. No exclusion applies for self-employment tax purposes."

Secondly, I'll provide some guidance but it is blind because I don't know what is on your W-2.

You asked.... w-2 screens turbo tax asks these options which one do I pick:

a. pay self employment taxes on wages   <-- Generally either FICA or SECA was withheld by the church on your wages or you must calculate it now, however, I'm not sure when to use this choice unless the church wrongly only calculated FICA/SECA on housing allowance. So ?? maybe someone else can give advice about this option. I would not choose this.

b. pay self employment taxes on housing allowance <-- if the church withheld FICA or SECA on your wages but not your housing allowance.

c. pay self employment taxes on wages and housing allowance <-- Choose if nothing was withheld on your W-2. (this is what I pick)

d. don't pay self employment taxes < -- I think this only applies if you are a RARE person who has filed for (and been approved for) the religious objection to Social Security. 

FYI 
Few ministers can opt out of Social Security by meeting the strict IRS guidelines required for filing IRS Form 4361, Application for Exemption from Self-Employment Tax for Use by Ministers, Members of Religious Orders....  IMHO This is a very unwise thing to do!!

Again, I'm not an accountant, but this is how I understand these choices. Hope you find this helpful.

Many regional denominational offices will provide ministers guidance on these matters.

[bchris79]

I didn't received a w-2 (never have) but I've received clergy income as of 2021.
Since is too late to even request a w-2. May I declare that income on Sch C (line 1) and then go "additional income" Sch 1 (line 8-z other income) and enter a negative number and enter description as housing allowance

[JillS56]

This would not be the appropriate way to report the housing allowance.   If you have not received a W-2 yet, it is not too late to request one from the Church.   Without a document, W-2 to report the housing allowance the IRS will most likely question your return and potentially deny the housing allowance and make you report it as income.    

The general rule is  "A minister who receives a housing allowance may exclude the allowance from gross income to the extent it’s used to pay expenses in providing a home." AND

From a helpful website: "The fair rental value of a parsonage or the housing allowance can be excluded from income only for income tax purposes. No exclusion applies for self-employment tax purposes."

See  @Tazz3L for more information information once you receive your W-2.

@bchris79

[Tazz3Lpcusa]

Housing allowance must be approved by the governing body of your church before it is paid to you. It is my understanding that it cannot be approved retroactively. A minister cannot self-declare that income is housing allowance. It must be designated as such by the church and properly recorded in the minutes that allocated it and properly indicated in each paycheck.

Without such a paper trail all the income paid by the church is considered income not designated housing allowance. 

I'll reiterate, as I always do, that I am not an accountant.

I highly recommend you and the religious organization consult an accountant in this particular situation. It is never too late to request a W-2 or 1099, if one should have been issued. 

I have also heard that it is a crime for a treasurer not to issue w-2s and 1099s if they should have been issued. So again please be careful and consult a professional.