@ecosse It means the church is badly screwing up their tax filing and needs to see a professional to get it fixed.
Any pastor who answers to their local church (via direct congregational vote or through a board of elders, deacons, or answers to the denomination (district, bishop, etc) is a *common law employee* and should receive a W-2. However, only wages should be in box 1, with no withholding in boxes 2-6.
Even if the church is deducting (incorrectly) FICA and medicare tax, the church can still declare a housing allowance and provide that part of the income to the pastor tax-free. A housing allowance must be designated in writing and in advance by the church board. It must not be included in W-2 box 1 wages. It is reported separately in box 14 of the W-2 or by a memo to the pastor. In Turbotax, if you have FICA withheld and also have a housing allowance, you would check the box for "pay SE tax on housing allowance only." (This is the rare case where that box is used.)
If the housing allowance is included in the box 1 wages then it is taxable. There is no way to get it tax free without having the church issue a corrected W-2 that removes the housing allowance. (And remember, the housing allowance still must have been designated in advance and in writing -- if not, housing is fully taxable. It can start to be tax-free going forward if the board adopts an appropriate resolution.)
If your housing is included in your W-2 wages, you and the church treasurer may need to seek assistance from a tax professional to correct your W-2 and form 941 filings over the past year.
