@andy4361663 wrote:
So, I did some research, and it turns out my 1099-MISC income is not considered "earned income" for the sake of the EIC worksheet calculations because of my self-employment tax exemption form 4361. The worksheet calculations factor in my total income in line 1, and then subtract any amount of 1099-MISC income exempt from SE taxes in line 2, which renders my earned income for the sake of the EIC to zero.
Wow, I wish I would've realized I'd be getting back $4,500 less when I signed the contract a year ago. I should've asked for a W-2 with a designated housing allowance (the Church would then be on the hook for half my self-employment taxes), but who's to say they would've said "yes."
It's not the contract you signed, it's the form 4361. That is an irrevocable, life-time binding decision to not be covered by the social security system as long as you are performing pastoral or ministerial work. Since the requirement to pay social security or self-employment tax is the foundation for most definitions of "earned income", signing that form impacts many decisions, including child care credits, earned income credits, ability to make deductible IRA contributions, and who knows what else. If you thought you were just saving a few bucks in taxes, you made a hasty choice without all the facts.
This may be of use.
http://www.ecfa.org/PDF/MinTax_Preparing_2019.pdf
ECFA has other clergy financial resources as well. Your denomination may have a membership that will allow you access them for free.
Going back over this thread, I suspect the church also misclassified you as an independent contractor. If they controlled your work hours and conditions of employment, you were a common law employee, even though you are considered "self-employed" for limited tax purposes. As a common law employee, they must give you a W-2. Your wages will be in box 1, and boxes 2-6 will be blank, since you are not subject to income tax or employment (social security and medicare) tax withholding.
A common law employee may have other rights under state law, such as the right to medical insurance, unemployment insurance, workers comp, and so on. For example, in New York, an employee must receive a pay stub with 13 specified pieces of information, and failure to provide this is a $100 per employee per paycheck fine.
Read more here about employee vs contractor.
https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-o...
If the church intentionally misclassified you to save paperwork or save money on state law requirements, that is not only potentially illegal, but unethical, and poor stewardship, and I would want to have a conversation with the leadership. (How do you preach a sermon on good stewardship and tithing if the church is cheating on its tax obligations?)
If you do not have a housing allowance, you should ask the church to designate part or all of your pay as a housing allowance. This makes it tax-free. See the ECFA pamphlet for more.
