@Fuzzies wrote:
Hi. I still have questions and would love your advice!
My husband is a pastor and his W-2 reflected that SS and medicare were both withheld this past year. They were. But obviously we realize now that they shouldn't have been. What should we do for our 2020 taxes?
And can we fix this for 2021, even though the year has already started? If so, how?
Thanks!
For 2020, you are stuck. If you don't have a tax-free housing allowance, don't even bother to check the box for religious wages after entering the W-2. If you do have a housing allowance, you need to check the box for religious wages, and when asked how to pay self-employment taxes, choose "housing allowance only." Although it is not correct for the church to have withheld the tax, Turbotax has that option for such cases.
For 2021, there is nothing you can do directly, the church has to fix it. Your treasurer or payroll company would normally be remitting the social security and medicare tax to the IRS quarterly, using form 941. The first installment is due April 15, so now is a perfect time for the church to refund the withholding so far, and submit a form 941 with no withholding. If the church waits until after the form 941 is submitted with the first quarterly payment, fixing the problem takes more steps. If you are a very large church with many employees, you might be required to submit the taxes more often. But in that case, it is also easier to fix the issue by filing amended forms and adjusting future payments to cover the refund. I should not have to go into more detail, either you have a treasurer who needs and education, or you have hired a payroll company and you are paying them to do it right.
You may also want to read this, especially if you don't have a properly designated housing allowance.
https://go.efca.org/resources/document/preparing-tax-returns-clergy
