I have searched the web for a definitive framework for a member of the clergy and a traditional IRA. I agreed to do a return to help a member of the clergy, Turbotax is not getting the answer that I expected for his maximum.
He has a wage, an excess housing allowance which is considered earned income, and a schedule C profit (see publication 451). I expected to find this total on the IRA work paper, but instead, TurboTax only allowed the excess housing allowance as eligible for the IRA.
Any ideas?
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To address the question, I would like to do a Diagnostic. The diagnostic code is used by the TurboTax Agent to view your "scrubbed" copy of your return when you are having certain problems that cannot be resolved. You, the customer give the agent this code for them to enter. Your personal information is removed. Here are the steps to get the code:
Please add this token number to your post.
1079112
I forced in the number I think is correct and added a $7,000 IRA in this version
Most clergy should have a W-2 because they are common law employees of their church, but because they are exempt from tax withholding, boxes 2-6 should be blank. If the W-2 looks different, post the details here because it probably means the church is doing the payroll wrong. The box 1 wages are subject to self-employment tax on schedule SE.
Clergy can also have schedule C income for side gigs, whether religious (performing weddings and funerals, ad hoc hospital chaplain, etc) or secular.
A housing allowance is non-taxable for income taxes, but it is taxable for self-employment taxes. The housing allowance should not be reported on the W-2 at all, unless it is reported in box 14, which is a memorandum field that has no impact on the tax return.
line 2 of schedule SE should represent the total of the pastor’s box 1 wages, housing allowance, and any schedule C income. When using TurboTax, there is an interview step that will ask about a pastor’s housing allowance and correctly add it to schedule SE. After entering the W-2, click "religious wages" on the page of special circumstances. You will be asked about the housing allowance amount, and whether to pay SE tax on "wages only", "housing allowance only" or "both" -- both is always the correct answer. The other answers are only needed if the pastor needs to correct a mistake made by their church's payroll person.
If you are preparing taxes by some other method, you will have to look to your own method to ensure that both wages and housing allowance are subject to SE tax.
Thanks for the response, but how to report is not an issue. They are following the law
I am trying to understand the calculation fo the maximum IRA in reference to a minister. I think it should be his wage, the excess housing allowance, plus the self-employment income for doing funerals and weddings.
Turbotax is only counting the excess housing allowance, but I am not sure why
@tdattomo wrote:
Thanks for the response, but how to report is not an issue. They are following the law
I am trying to understand the calculation fo the maximum IRA in reference to a minister. I think it should be his wage, the excess housing allowance, plus the self-employment income for doing funerals and weddings.
Turbotax is only counting the excess housing allowance, but I am not sure why
What's on line 2 of schedule SE?
I agree with you in principle, except that the eligibility should be about 92% of schedule SE, to account for the employer half of social security and medicare.
It's possible TT is not calculating the eligibility correctly, TT has improved handling of clergy income over the years but it's not perfect. Also, there is a current bug that prevents Turbotax from recognizing graduate fellowships as compensation for IRA contributions, maybe this is connected.
If you have the desktop version, you might switch to forms mode and see if you can find an IRA eligibility worksheet where the numbers are being calculated. It seems like the Turbotax expert may be doing the same thing with your token number.
I cannot say the $7000 you forced is correct.
Please review these worksheets:
IRA Contributions Worksheet
Social Security Recipients Who Contribute to a Traditional IRA Worksheet
Earned Income Worksheet.
The computation is not straightforward as it appears. Opus the Champ suggested the potential situation with the SE tax, and that you should review these calculations which I am in agreement with.
Possibly seek LIVE assistance if he can't reconcile these numbers?
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