@krismanteuffel wrote:
I have a related but slightly different question. However, I think the responses will be along the sames lines, so I believe responding here and getting updated input is the most helpful for others looking into this thread.
My husband is a hospital chaplain. He has a housing allowance within his W2 that shows up under line 14. Medicare has been withheld but Social Security has not been withheld on his W2.
1. How to I respond to the TurboTax question below?
Again, he HAS had Medicare withheld but NOT social security this past year.
2. How should he appropriately adjust his w2 for next year with the hospital given this confusion?
Thank you!
From TurboTax Questionnaire:
Question: How should we calculate these taxes?
Options:
- Pay self-employment tax on my wages
- Pay self-employment tax on my housing allowance
- Pay self-employment tax on my wages and housing allowance
- Social Security and Medicare taxes have already been withheld
- This income is exempt from self-employment tax because I have an approved Form 4361
If the hospital withholds social security and medicare tax from his wages (box 4 and box 6 of his W-2), then you should
- Enter the W-2 and check the box for religious wages.
- Enter the amount of the parsonage allowance, and enter the amount of his qualified housing expenses (up to but not more than the housing allowance_)
- Answer pay SS and Medicare taxes on the housing allowance only.
If the hospital withholds no social security and medicare tax from his wages (box 4 and box 6 of his W-2 are blank) then you should
- Enter the W-2 and check the box for religious wages.
- Enter the amount of the parsonage allowance, and enter the amount of his qualified housing expenses (up to but not more than the housing allowance_)
- Answer pay SS and Medicare taxes on the both wages and housing allowance.
There are no mistakes here and no corrections are needed. You can read about clergy tax issues here,
https://www.irs.gov/taxtopics/tc417
Brief summary:
For most workers, if the employer provides a place to live, that must be included in taxable wages. There is a longstanding common law exception for clergy who were given the right to live in a parsonage associated with the church tax-free. That has been extended to the concept of a "housing allowance" -- clergy who do not live in a parsonage can be given part of their salary as a tax-free housing allowance to use for their own housing arrangements. However, even though the housing allowance is exempt from income tax, it is subject to self-employment tax (medicare and social security). Pastors in general are considered self-employed for certain income tax purposes, and usually do not have medicare and social security tax withheld from their wages, and must pay 15% self employment tax on all their compensation (wages, plus housing allowance or the rental value of a parsonage). In your case, the hospital is allowed to designate part of the chaplain's salary as a housing allowance, and leave it out of their box 1 taxable wages. But it must still be reported to the IRS because it is subject to self-employment tax. The interview answers above will put the housing allowance in the right place and tax it appropriately.
This is normal for clergy and the hospital is doing it right, no changes need to be made.
