I'm clergy, and TurboTax won't let me pay Self-Employment tax if ANY amount was withheld for Social Security on my W2. How can I fix this clear error?

[anonymousbadger]

Like I said, I'm clergy, and I'm required to self-employment tax on all my religious income, both salary and housing allowance. However, TurboTax won't allow me to do so if any amount was withheld for Social Security tax. This seems to be a clear mistake in the program, and will result in me underpaying my taxes by thousands of dollars or seeking another route to file my taxes.

[Opus 17]

Firstly, it is incorrect for the church to withhold social security and medicare tax if you are performing religious duties, so you need to make sure they correct this for 2021.

Then, were you performing religious duties all year as a qualified minister, or were you working part of the year in a non-qualified position that was subject to social security and medicare?  (For example, if you were employed as a lay pastor until June, and then got your pastoral license from your denomination and began in an official religious role in July, then it would be correct to withhold social security and medicare wages on your non-clergy wages.  However, Turbotax can't handle this situation by itself.)

It would help if you give me more details on your exact situation.  It may be that you need to make some manual entries in Turbotax, or you may need to see a professional this year if you are not comfortable doing that. 

[anonymousbadger]

Yes, I've done that a number of times trying to get a different result regarding the issue I posted in my question.

[anonymousbadger]

Thanks for the reply. All my income for this year is clergy income. Regardless of whether my employer incorrectly withheld taxes, I still need to pay taxes on it. I'd love to know how to manually edit forms, though I'm on the verge of just have a professional do my taxes. Is there any other info you'd need to be able to answer my question?

[Opus 17]

How much social security and Medicare was withheld?  The full amount for the year, or a partial amount?  If possible, what are the values in your W-2 box 1, 3, 4, 5, and 6?

[anonymousbadger]

A partial amount. I'm not sure how it was calculated, tbh.

And I hope you understand, but I'm not gonna publish exact amounts on a public online forum.

Is there a way to manually edit this in TurboTax or should I find a professional?

[Opus 17 · Accepted solution]

If using Turbotax online, you can't make manual entries.  The workaround would be to divide your W-2 into 2 W-2s, one that covers your SS wages and one that includes non-SS wages.  Box 4 should be 6.2% of box 3, and box 6 should be 1.45% of box 5.  Box 4 and 6 should generally be the same unless your income is more than $136,000.  That's how you would split the W-2s.  

For example, suppose your W-2 shows

1_$50,000.        2_$3500

3_$20,000.        4_$1,240

5_$20,000.        6_$290

You would enter this as if it was a W-2 for 

1_$30,000.        2_$0

3_$0.                  4_$0

5_$0.                  6_$0

and another one for 

1_$20,000.        2_$3500

3_$20,000.        4_$1,240

5_$20,000.        6_$290

Split the state wages and withholding in the same way. 

The W-2 with zero SS tax would be marked as clergy, and you would select to pay SE tax on your wages plus housing allowance.  The W-2 that shows your income that was taxed would not be coded as clergy, just as a regular W-2. 

If using Turbotax installed on your own computer, you can use this workaround or you can make a manual entry as follows.  Enter the W-2, check "clergy wages" and check the box for "pay SE tax on wages plus housing allowance."  Then, click the Forms icon at the top to switch for Forms mode, and locate the Schedule SE Adjustment Worksheet (Sch SE Adj Wks).  Locate line 5a, which is your income subject to SE tax.  Highlight line 5a and select Override from the menu.  Edit the line 5a amount to be only the part of your wages that were not already subject to social security tax (in my example above, that would be changing "$50,000" to "$30,000.")   Be aware, however, that making overrides voids the Turbotax accuracy guarantee and prevents e-filing, you will have to print your return and file by mail.

Or you certainly could see a professional this year.  Turbotax can't automatically handle a clergy W-2 that was prepared incorrectly by the church.

[anonymousbadger]

Ooh, this is an interesting workaround, and I might try it. 

I'm using the online version, so I'd need to split W2s. Why would I need to report Box 2 with the SS withholdings and not the rest of the income?

[Opus 17]

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@anonymousbadger wrote:

Ooh, this is an interesting workaround, and I might try it. 

I'm using the online version, so I'd need to split W2s. Why would I need to report Box 2 with the SS withholdings and not the rest of the income?

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It won't actually matter how you split the box 2 federal withholding.  Most churches don't withhold any taxes, so box 2 will be blank for most clergy.  (It is not improper for a church to withhold in box 2, if the pastor submits a W-4, but it is less common.)

[Greg Briggs]

For what it's worth, I'm having a similar issue, but it's because the church paid a Social Security offset as part of my compensation package, so they didn't do anything improper.

[Opus 17]

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@Greg Briggs wrote:

For what it's worth, I'm having a similar issue, but it's because the church paid a Social Security offset as part of my compensation package, so they didn't do anything improper.

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You aren't specific about your situation, but if you have any value in box 3, 4, 5 or 6 of your W-2, then the church messed up.  If they are giving you a salary bump to account for your self-employment taxes, that should be included in your box 1 wages, not in box 3, 4, 5 or 6.  (Further, if they included money in your W-2 boxes 3-6 but did not file a form W-3 and form 941 or 944 that matches, they will be getting letters from the IRS too.)

[vsalz]

After you input your W2 continue to the screen "lets check for uncommon situations"  where you will check "Religious employment" continue and check "clergy" continue to  input/confirm your housing allowance, continue to "Now tell us about your clergy self-employment taxes" screen.  Here is where you tell TurboTax how to tax your wages and housing allowance.  Employers will tax the wages and retirement portion only, or not at all.  If your W2 shows SS tax is approximately 6.2% of the SS wages (wages plus retirement), then choose option "Pay self-employment tax on my housing allowance."  If there are no SS wages or tax, then choose "Pay self-employment tax on my wages and housing allowance".   Hope this helps.

[DF00]

Did this work for you? I'm in similar situation. 

[RobertB4444]

The steps laid out by @vsalz  should work just fine.  

@DF00 

[KL47]

I have a question on this topic too.  My W2 did not have any tax withholding for clergy work.  W2 only have Box 1 wages and Box 14 which is housing allowance.  Which one should I choose below:

Pay self-employment tax on my wages

Pay self-employment tax on my housing allowance

Pay self-employment tax on my wages and housing allowance

I need help please.