@ConradM wrote:
We have both W-2 employees and 1099 contractors, and for our W-2 employees, their gross pay is reported to both Pennsylvania and Maryland, but for the federal pay, the housing allowance is deducted. So I would assume the same differences would be reported for 1099 workers, if they had a Housing Allowance. We have a 1099 contractor who would like to have a Housing Allowance, but I didn't know if it was possible.
Pennsylvania rules look like a mess. Occupancy of a parsonage is tax-free, and if the church pays the pastor's mortgage directly it's tax-free, but if the church pays a housing allowance, it seems to be subject to state income tax (but not local income taxes).
https://www.revenue.pa.gov/FormsandPublications/PAPersonalIncomeTaxGuide/Pages/Gross-Compensation.as...
I haven't checked Maryland rules.
Remember that a 1099 is a federal reporting document. If you have someone who qualifies as an independent contractor (not a common law employee) and who is in a pastoral or ministerial position (meets the 4 factor test for being a minister and performing minister duties) then you only report their taxable compensation on the 1099-NEC because that follows federal reporting requirements. It would be up to the minister to declare the housing allowance as additional taxable compensation on their state income taxes (just as it it up to the minister to declare their housing allowance for self-employment tax on their federal return).
Whether any particular person qualifies for the special tax rules for ministers, including the housing allowance, depends both on their qualifications and their actual duties, as discussed on pages 7-10 here.
https://go.efca.org/sites/default/files/resources/docs/2020/01/c_inetpub_wwwroot_ecfa_pdf_ministers_...
