@runpastorrun wrote:
Thank you, David. I did check the box. As it digs in, you get to a section (Part V Clergy, Church Employees, Members...) where you can enter your designated housing or parsonage allowance. I have elected to take $5000 from the salary offered to me and designate it as housing exclusion. I also am offered a parsonage with a fair rental value of $30,000. The first question (7a) does not mention anything about including the fair market value of the parsonage. I originally left it as $5000. The second question (7b) says "Enter the smallest of (a) your designated housing or parsonage allowance, (b) amount spent on qualifying housing expenses, or (c) fair rental value. The "smallest" number would have been my housing exclusion of $5000. If I put that, the fair market value of the parsonage is never included in line 2 of SE.
I'm writing all of this in hopes that it can help someone in the future. Once I put $35,000 in both 7a and 7b, the right amount was included in line 2 of Sched SE.
You can't do that.
A housing allowance must be designated in advance and in writing by your church, through the finance committee, board of elders, or however your compensation is determined. You can't self-designate and it can't be retroactive. If you have a free parsonage and you want additional funds designated as housing allowance, you can ask your church to do that starting from today (or whenever it can be approved and put in writing) but it can't be retroactive and can't be self-designated. And as part of the designation, the church would reduce your box 1 wages by $5000.
Note that your W-2 box 1 wages must not include the value of your parsonage or utilities. If it does, you are being over-taxed and you need a corrected W-2.
If your parsonage and utilities is $30,000, that is what you enter as qualified expenses. If you enter $35,000, then you are paying MORE tax, because you are paying self-employment tax on an extra $5000 you did not receive, while at the same time you are not actually reducing your box 1 taxable income. (In the future, if you do get a designation of part of your cash compensation as a housing allowance, you would enter the total of parsonage, utilities and other expenses.)
