My 403b contribution is deducted, not excluded. Therefore, it is not reduced from w2 box 1, and must be deducted later in the program. How do I do that in Turbotax?

[IreneS]

Since your contributions are made "after-tax," your retirement plan may be set up as a Roth 403(b).

If so, you cannot deduct your 403(b) contributions on your tax return. These contributions are already accounted for on your W-2 in box 12:

• Any pre-tax portion has code E; and
  

• The after-tax portion has code BB (Roth 403(b)).
  

By design, the Roth 403(b) contributions are not deductible.

[Tarseeli]

Thanks for the answer. Actually, my employer made a mistake in my w2. Pre-tax contributions must be subtracted from box 1 of the w2. There is nowhere else on the 1040 form to subtract them from.

[CyndieT]

This same subject applies to us because we are a church and employees have to pay their own self-employment taxes I'm trying to figure out how to report on w2 and file in turbo tax.  It won't let me change the gross wages for the self employment form and if I include all gross pay in box1 it won't let me enter a 403b deduction.  Any ideas?

[Opus 17]

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@CyndieT wrote:

This same subject applies to us because we are a church and employees have to pay their own self-employment taxes I'm trying to figure out how to report on w2 and file in turbo tax.  It won't let me change the gross wages for the self employment form and if I include all gross pay in box1 it won't let me enter a 403b deduction.  Any ideas?

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You generally can't contribute to a 403(b) except by payroll deduction.  In other words, you agree to a salary reduction, and your employer contributes that money to the plan in lieu of paying you a salary.  You can't make out of pocket contributions to a 403(b) as far as I am aware, even as a minister.

In addition, wages that are contributed to a 403(b) plan are still considered earned income and are still subject to social security and medicare tax, or SE tax.  The reason you only have to pay income tax on withdrawals when you retire, is that you paid the SE on all your earnings when you earned it, even though part was contributed to a retirement plan.    So for a W-2 employee, a pre-tax 403(b) contribution reduces their box 1 taxable income but not their box 3 social security income. 

I may not understand your whole situation, but if you have 403(b) deferrals, your church should subtract them from your box 1 wages, but you need to report income for SE tax purposes equal to your full salary plus housing allowance.  You can do this by increasing the reported housing allowance.  For example, let's say your gross salary is $20,000, plus a $15,000 housing allowance.  Your employer reduces your salary by $3000 and contributes that to a 403(b).  Your W-2 box 1 wages should be $17,000, your boxes 2-6 should be blank, and you would report $18,000 of housing allowance ($15,000 + $3000, because you need to get the SE total up to $35,000 one way or another.)

There's another way to adjust it manually in forms mode using Turbotax installed on your own computer from a CD or download, that you can't do if using Turbotax online, but you shouldn't need the online program for this. 

After reading that, do you still have a question?  

[CyndieT]

Thanks for the help that did give me some options to make it right. Appreciate the help.

[Opus 17]

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@CyndieT wrote:

Thanks for the help that did give me some options to make it right. Appreciate the help.

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It sounds like you might be the treasurer rather than the pastor?  This is what I did at my church.

Suppose the pastor's agreed salary was intended to be $500 per week net after SE tax.  I would cut a check for $575, so after the pastor paid the 15% SE tax, his net pay was $500.  

Now, we also contributed 12% of his salary ($60) to a denominational pension scheme. Since that was subject to SE tax, I bumped his paycheck another $9 (15% of $60).  And, he lived in a parsonage valued at $12,000 per year, or $230 per month.  Since that is also subject to SE tax, and we wanted him to "net" $500 per week, I bumped his check another $35.  So his paycheck ended up being $619.

After 52 weeks of that, I issued a w-2 with $32,188 in box 1, with boxes 2-6 blank.  I issued a letter on letterhead, signed as treasurer, informing him that he also had a $12,000 housing allowance and $3120 pf pension contributions subject to SE tax.  After that, it was the pastor's responsibility to report that his cash wages were $32,188 but his income subject to SE tax was $47,308, and it was up to him to prepare his own tax return or see a pro.  (I could have prepared his personal tax return as well, but I was concerned about a potential conflict of interest, so I didn't.)

There are other ways to arrange things, but that's how we did it.  Hope that helps. 

[CyndieT]

Thanks - Our issue is with non-clergy.  We withhold Fed & State but not FICA they have to pay that on schedule SE.  Housing is also not an issue with these employees as they do not receive housing allowance.  I think the best work around is to override the schedule SE gross income to include their 403b withholding.  Unless someone else has a different suggestion.

[Opus 17]

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@CyndieT wrote:

Thanks - Our issue is with non-clergy.  We withhold Fed & State but not FICA they have to pay that on schedule SE.  Housing is also not an issue with these employees as they do not receive housing allowance.  I think the best work around is to override the schedule SE gross income to include their 403b withholding.  Unless someone else has a different suggestion.

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That's incorrect and illegal.  You must withhold FICA and medicare tax for non-clergy.  They are regular employees and you must follow the rules for regular employees.  You must even withhold FICA and medicare from clergy who are not in clergy roles.  (For example, someone who is an ordained minister is hired to be the Sunday school supervisor, and does not perform ministerial duties is a regular employee subject to FICA and medicare withholding.   You must include the FICA and medicare on their W-2s and on your quarterly form 941s.  You must remit the FICA and medicare wages to the IRS.  Regular employees are also subject to mandatory wage withholding for state and federal income taxes with a W-4, its not optional like it is for ministers.

The special rules for ministers' taxes only apply to people who actually perform ministerial services. 

For example, we had a "youth pastor" who was not licensed as a minister in our denomination, even though je was licensed in another denomination.  He was not eligible to be treated as a minister for income tax purposes until he completed 2 seminar courses and an interview with the bishop.  Until then, he was treated as a regular employee and was required to have SS and medicare tax withheld.

From the IRS:

Most services you perform as a minister, priest, rabbi, etc., are ministerial services. These services include:

• Performing sacerdotal functions;

• Conducting religious worship; and

• Controlling, conducting, and maintaining religious organizations (including the religious boards, societies, and other integral agencies of such organizations) that are under the authority of a religious body that is a church or denomination.

You are considered to control, conduct, and maintain a religious organization if you direct, manage, or promote the organization's activities.

[Cabber]

Hi, I have a similar situation that is not related to clergy. I had 18,000 withheld from my pay in 2021 for 403b plan (not Roth 403b) but this was not deducted from my total in w2 box 1 (it states 48,000, same as FICA and Medicare taxes,  when it should be 30,000). Box 12 does show the 18,000 contribution with code E.  Is there another way to adjust for this other than having corrected w2 issued?  My employer is a college but they are rather stupid about such things.  I've had the same issue in the past. Thanks. 

[Opus 17]

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@Cabber wrote:

Hi, I have a similar situation that is not related to clergy. I had 18,000 withheld from my pay in 2021 for 403b plan (not Roth 403b) but this was not deducted from my total in w2 box 1 (it states 48,000, same as FICA and Medicare taxes,  when it should be 30,000). Box 12 does show the 18,000 contribution with code E.  Is there another way to adjust for this other than having corrected w2 issued?  My employer is a college but they are rather stupid about such things.  I've had the same issue in the past. Thanks. 

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"Is there another way to adjust for this other than having corrected w2 issued?"

No.

If you filed a substitute W-2, listing what you think the W-2 should say, that will trigger a series of investigations that will be more trouble to you and your employer in the long run than fixing the W-2.