@jbbandkathy wrote:
Thank you for your response. I will reduce the IRA amount. He pays the full amount of the self employment tax, both the employee and employer portion which is the $5202 since he is considered self employed as a clergy. So I don’t understand why he would have to subtract the deductible portion of SE which is $2601 from his wages.
There is a general rule for all self-employed people that "compensation" for purposes of IRA contributions is their net profit minus half the SE tax. The reason for this is to make things equitable with W-2 employees. Imagine an employee who makes $100. The employer musts pay $7.65 to the social security administration for the employer half of social security, so the employer's "real wage" before SS and medicare was really $107.65. When you are self-employed, you are both employer and employee and pay both halves. So if your net profit is $107.65 and you pay $15.21 in self-employment tax, you subtract half the SECA which results in "compensation" of $100.04 for IRA purposes, which is pretty close.
In other words, the calculation equalizes the "real compensation" between employees and self-employed people by adjusting for the employer half of social security and medicare.
While that formula is correct almost all the time, I am not 100% certain it should be calculated that way for clergy. But it would require some sophisticated research to come up with a different answer, and then you would have to override the program and file by mail, and you would need an accountant to defend you if you were audited. So in this case, I think you probably just live with the adjustment.
