I am retired pastor. Do I have to pay social security tax on my pension which was pre-tax? I also need to know if I pay social security tax on housing allowance that I get in retirement.
No, you don't pay Social Security on pension income. You only pay it on earnings from working.
Remember to reduce your pension income by your housing expenses just like you did before you retired.
If your retirement income is designated as a housing allowance it can be exempt from income tax as well as self-employment tax.
How to enter a RETIRED clergy housing allowance - Form 1099-R
The IRS allows a housing allowance to retired ministers to the extent the recipient can justify the amount. Should you receive more than you can justify, the excess should be considered taxable.
You may include this statement with an electronically filed return using the instructions below.
You may file a paper return with an attachment stating that you received an exempted housing allowance as a retired clergy member. Be sure to include the amount received. You should keep documentation in your records to justify the amount of the housing allowance. This subject is covered in IRC Section 107, which you can mention in your statement.
You should have received form 1099-R reporting the distribution. To access the entry fields for the 1099-R:
From within TurboTax, scroll down the Income Summary List
In Category Retirement Plans and Social Security select IRA, 401(K), Pension Plan Distributions (Form 1099-R).
Add a 1099-R to create a new copy of the form or Click Edit to review a form already created.
The program will proceed with the interview questions for you to enter or review the appropriate information. Enter the data from the 1099-R excepting Box 2 information - see next.
If Box 2b is checked [Taxable Amount Not Determined] then right click the field for Box 2a and select "Add supporting details",
a. make sure the "NOT print box is not checked!
b. In first line of description enter "Taxable amount reported in Box 2a and in the Amount enter the Box 2 amount.
c. In the second line enter description "Deduction for Housing
Allowance" and in the Amount enter as a negative the allowanceas an adjustment
d. If the Housing Allowance exceeds the Pension received and a
negative sum results, then reduce the Housing Allowance so that the sum is zero.
If Box 2b is NOT checked, then you should report as taxable for the 1099-R the amount reported and adjust it as follows.
a. After exiting the 1099-R entry, return to the Income Summary list.
b. Scroll down the list to "Less Common Income" and select
c. Select "Other Reportable Income" - to the question
"Any Other Taxable Income" answer "yes"
d. Enter for Description = "Clergy Housing Allowance" and for
amount - as a negative the housing allowance amount.
This adjusting entry will appear as a negative amount on
Page 1 of Form 1040 line 21 with description showing.
Originally answered by user Scruffy_curmudgeon to this question
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