Clergy self-employment tax options

[Opus 17]

At the risk of being cynical, it wouldn't pay.  Turbotax has some interesting dynamics in their business model.  They have something like 80% market share in tax prep, and more than 80% of their customers use Turbotax online.  TT online is built around being easy to use (although one wonders whether this year's advertising theme that "tax prep doesn't have to be scary" isn't really a clever way of saying "taxes are very scary indeed unless you use us").  TT online is free for all users with simple returns, which is more than 50% of users and likely to be more than 75% of users after tax reform, if they file early.  Many online users who miss the "Absolute zero" promotion still qualify for free federal filing but pay $40 for their state taxes.  Then there seem to be lots of people who don't want to pay that $40 out of pocket, so they sign up to have the fee deducted from their refund which is an additional $40 service charge.  And Turbotax this year ended all telephone tax help for Online users unless they upgrade to "Turbotax Live" which gives you a live connection to a CPA for $179 cost (federal only not counting state).  Plus extra fees for add-ons like audit defense and identity protection.  Despite "free to start", Online is a huge profit center.

On the other hand, desktop users are a small share of their user base, but are the most vocal and most loyal.  2 or 3 years ago they tried to restrict the capabilities of the desktop program to bring them in line with the limitations of the online program and there was a nationwide outcry that forced them to reverse course, give rebates to desktop users stung by the problem, and re-open the advanced capabilities of the desktop program.   Because of retail price markups, they probably wholesale each copy of the desktop program for less than half the gross revenue of each online customer.  They would probably love to downgrade the desktop program, but they can't; not without losing a big slice of customers, not to mention angering reporters at WSJ and Forbes who are long time loyal Turbotax Desktop users and who helped keep the controversy alive until management caved (groveled, actually).

I think you'll find no interest at all at Intuit for making an online version that allows direct editing of the internal worksheets.  Direct editing voids the accuracy guarantee, and overrides also prevent e-filing.  I'm sure they would rather you upgrade to Turbotax Live and have a CPA make the adjustments for you.

For me, Online is for users who have simple returns and can file for free, or who are so incurious about their tax returns that they would pay through the nose for hand-holding.  Desktop is for people who could do their taxes by hand if they really wanted to but don't want to take the time, but who still want to be able to look under the hood and know where that final number comes from.

Just my opinions.

[persdawg]

back again...I'm not sure what or where a manual override is needed within the online version for my wife who became a pastor in April last year.  The acctng dept seemed to do things just fine...
Box 1 (includes time as staff and time as pastor) = Gross 41K - non taxable earnings (housing) 24K = 17K
Box 3 = Gross 41K - non taxable earnings (housing) 32K = 9K
Box 5  = same as box 3

[Opus 17]

Box 1 should have the total gross wages not including the housing allowance.  If box 1 says 41K but the housing allowance was 24K, then box 1 is wrong.

Box 3 and 5 should only have wages from when your wife was staff and not from when she was changed to a clergy position, so it should probably be considerably less than box 1.

I have no idea what you are saying when you say box 1 is 41 minus 24 and box 3 is 41 minus 32.

What are the actual numbers in box 1, 3 and 5?  What was your wife's actual gross wages while on staff?  What was your wife's actual gross wages while a pastor?  What was her housing allowance for those 9 months she was a pastor?

[persdawg]

Box 1 = 17K. Boxes 3& 5 = $9K.  Total wages for the year = 41K.  It's not broken out, but she became a pastor starting April 1.  
Box 2=1914
Box 4=576
Box 6=134

...If this doesn't look right...I'm not even sure where or what could be changed.

[Opus 17]

Sorry about the delay I should be able to get to this late tonight

[Opus 17]

So there are two ways to handle this, the override method and a "fake W-2" method, both will work.

Both methods start out with needing to figure out the taxable (staff) wages, and clergy wages.  Staff wages will box 3, which should be about $9290 in your example, and clergy wages will be box 1 minus box 3, or about $7700.

For the "fake W-2" method, you will need to create on paper, two W-2s for your spouse, one for the staff wages and one for the clergy wages.  The clergy W-2 will have box 1 with the clergy wages and all other boxes blank, and the staff W-2 will have box 1 as the staff wages and all other boxes the same as the real W-2.   Then, enter the staff W-2.  Click "I have another W-2" and enter the clergy W-2.  Only after entering the clergy W-2, check the box for "religious wages" on the page of special circumstances, choose "pay SE tax on both", and enter the amount of the housing allowance (you said $24000).

The override method involves entering the one W-2 as-is with no changes, check the box for "religious wages" and "pay SE tax on both" and enter your housing allowance.  Then, click the Forms icon to change to Forms mode, and locate Schedule SE Adj Wks (Schedule SE adjustment worksheet).  You should see line 5a, clergy wages, and line 5b, housing allowance.  Line 5a will show the entire W-2 box 1 amount.  You need to click the number field for line 5a and then select "Override" from the Forms menu, and replace the number with the clergy wages only ($7700).  That way you only pay SE tax on the clergy part of the wages, and don't pay SE tax on the staff wages that were already taxed.

[LORENANDMARSHA]

I am hoping you can help me with this tax situation of my W2 and best way to report it in TurboTax desk top version.  This year 7/2020 the WELS synod changed us female called workers regarding housing allowance and now they will not be taking out taxes on our salary and housing allowance.  My church for 2020 in error kept taking taxes out like an employee even after 7/2020 and only issued one W2.  (2021 they are NOT taking out taxes but I am having them take out $270 bi monthly of my salary instead of paying in quarterly myself and I might have to adjust this).  So my W2 looks like this:

Box 1 $34496.82   Box 2 $3662.00

Box 3 $34496.82   Box 4  $2138.80

Box 5 $34496.82   Box 6  $500.20

Box 12A  W $880.98

Box 14 Clergy housing $9166.70

How to I input this in Turbo Tax correctly.  I saw on one of your post I think to enter it has 2 separate W2's?  How would you recommend I enter mine?

[Opus 17]

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@LORENANDMARSHA wrote:

I am hoping you can help me with this tax situation of my W2 and best way to report it in TurboTax desk top version.  This year 7/2020 the WELS synod changed us female called workers regarding housing allowance and now they will not be taking out taxes on our salary and housing allowance.  My church for 2020 in error kept taking taxes out like an employee even after 7/2020 and only issued one W2.  (2021 they are NOT taking out taxes but I am having them take out $270 bi monthly of my salary instead of paying in quarterly myself and I might have to adjust this).  So my W2 looks like this:

Box 1 $34496.82   Box 2 $3662.00

Box 3 $34496.82   Box 4  $2138.80

Box 5 $34496.82   Box 6  $500.20

Box 12A  W $880.98

Box 14 Clergy housing $9166.70

How to I input this in Turbo Tax correctly.  I saw on one of your post I think to enter it has 2 separate W2's?  How would you recommend I enter mine?

---

You don't need to split your W-2 because even though you were technically dual status, you were paid all under employee status, and Turbotax includes a workaround for this situation.

However, the first question is whether the housing allowance was subtracted from your box 1, 3 and 5 wages.  Was your actual gross compensation $35,000 or $44,000?

If your actual gross compensation was $35,000, then your W-2 does not reflect a tax-free housing allowance.  Box 14 by itself means nothing, it's a memo field that can be populated with almost anything.  You would need to get the situation corrected by the employer -- either they need to issue a corrected W-2, or you didn't get a tax-free housing allowance for 2021.  You can apply for an extension to file your tax return so you aren't considered late.

If your actual gross compensation was $44,000 then your only problem is the withholding of SS and medicare tax.  Since the tax was withheld for the entire year, you aren't being treated as a dual-status taxpayer even though you should have been.  Filing your return is fairly straightforward.  Enter your W-2 as-is, and check the box for religious wages on the page of uncommon situations.  Enter your housing allowance and your qualified expenses.  Check the box for "pay SE tax on housing allowance only."  This choice exists for situations like yours--since you already paid employment taxes on the wages (due to the employer's mistake) you only need to pay SE tax on the housing allowance.  And since your housing expenses are less than your housing allowance, the difference will be added back to your taxable income and be subject to income tax as well as SE tax. 

[GMcC99]

I entered a clergy W-2 but TurboTax did not calculate SE tax. You mentioned a "special circumstances" screen to select for a clergy w-2 - where can I find that?

[BrittanyS]

To enter clergy information using the W-2 entry, follow these steps in TurboTax Online:

1. Click Wage and Income
2. Click Edit next to Jobs (W-2)
3. Click Edit next to the Clergy W-2
4. Verify information until you get to the screen stating "Let's check for uncommon situations" (see screenshot)
5. Check religious employment and click continue
6. Click Clergy and click continue

@GMcC99

[GMcC99]

Thank you Brittany - I blew right past that screen the first time. Now I'm getting the right nunbers.