I am clergy. My employer provided me with a W2. The church, at my request, withheld all of the social security and medicare tax that would be due for 2015. How do I account for this in my tax return?

[pdfarnan]

Turbo tax tells me the church has withheld too much for social security and medicare tax and needs to pay the overage to me. However, the church treasurer submitted that money quarterly to the government. How do I account for this in turbotax?

[Opus 17 · Accepted solution]

You can't.  You and the church erred by withholding social security.  Turbotax will not recognize your W-2 as being a clergy W-2 and will not compute the self-employment tax correctly.

In my old church, for a while the treasurer transferred some of the pastor's salary into a holding account, and then paid the pastor's estimated taxes for him from that holding account, because the pastor (bless his heart) was not good with money and did not pay his own quarterly estimated taxes properly.  But this was not reported on the form 941 as official withholding, it was the treasurer "helping" the pastor by paying his estimated taxes for him.  (I also discontinued the process when I took over, for various reasons.)

The point of clergy tax treatment is that you are exempt from withholding and pay taxes as a self-employed person.  There are certain adjustments that can benefit you in this situation as well.  But by having formal FICA and medicare withholding reported on the form 941, you aren't being paid a clergy but as a regular employee, and if you tell Turbotax you are clergy, Turbotax will screw it up.

Separately, if your treasurer really did overwithhold social security and medicare (more than would have been correct for a regular employee), you can't get this back in Turbotax even if you are a regular employee.  The church needs to fix this.  The treasurer would submit amended form 941s that would result in a credit on your church's account.  If you have other regular employees, the credit would get applied to their withholding until it gets used up (so the church pays out less and can give that refund to you).  If the church has no other employees you can request a refund from the IRS after you submit the amended form 941s.

I think you and the treasurer need to see a tax professional to get this straightened out.

This may help as well, http://www.ecfa.org/PDF/2016-Preparing-Tax-Returns-For-Clergy.pdf

[Opus 17]

It just occurred to me that the problem might be that the church withheld your 15.3% SE tax and reported that all as withholding.  But when you are a regular employee, you are supposed to pay half (7.65%) and the employer pays the other half, which would be why Turbotax says you are over-withheld.  But that will also mean that the form 941s that the church filed will not match your W-2 or the church's W-3, and that's going to trigger an IRS investigation if you don't fix it.

That would also mean that it's not really that too much was taken out, but it was reported the wrong way, and you aren't really due a refund.  You see to see a tax pro who knows about church and clergy taxes.

[pdfarnan]

Thanks for your help. I guess we have quite a mess to straighten out!

[Abdi]

Hi,

If you still having this issue and need assistance,  please reply.  I am a tax professional with clergy tax experience. 

Thanks

[chelseyfaker]

Hello, my husband is a pastor and we have been struggling doing out taxes for 2018. We filed for an extension because we just couldnt figure it out and we dont have the money to pay for someone to help us. Here is the situation: we were told we HAVE to pay self employment tax on both HOUSING and INCOME. So I selected that on my Turbo Tax, however, at the very end it always wants me to review that section and it tells me I shouldn't have the housing selected if I have had either social security tax withheld OR medicare tax withheld. 

Our tax person made an error, and we had Medicare taxes withheld, but because there is an amount in that box, turbo tax is acting like we shouldnt have the housing selected, so when i uncheck that box, we literally go from owing like $300 to getting an $8000 refund. We were told to just pretend and ignore the fact that we had Medicare withheld, but that makes me confused, because it was withheld. 

[Fuzzies]

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!

[MarilynG1]

@Fuzzies You won't be able to correct the FICA and Social Security on your clergy W-2 this year, but you can resolve the issue going forward. 

You would work with your church to change this.  You will be able to enter your W-2 and Housing Allowance (if you have one) this year, and it won't affect your return. 

Click this link for detailed info on Clergy FICA and Social Security Tax.

[Opus 17]

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@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