Reciprocal state and clergy housing allowance in terms of state tax withholding

@Mike9241 

Hi, there are so many posts. Which one should I be looking for? Thanks.

Do you have a source for any state not recognizing a clergy housing allowance exclusion?  Most states use your federal adjusted gross income as the starting point, and a properly executed housing allowance is not included in the federal AGI. 

Thank you for the reply. My source is from PA Department of Revenue: "All housing allowances provided by the congregation to clergy are taxable as compensation, as cash is always taxable."

 

https://www.revenue.pa.gov/FormsandPublications/PAPersonalIncomeTaxGuide/Pages/Gross-Compensation.aspx#:~:text=All%20housing%20allowances%20provided%20by,as%20cash%20is%20always%20taxable.

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@hjw77 wrote:

Hi, there are so many posts. Which one should I be looking for? Thanks.

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This is a bulletin board, not an instant chat.  The speed of replies depends on which volunteers are available and how often they check the board.  (I am one of only 2 volunteers I know of who might be called "specialists" in clergy tax topics, and we aren't online 24/7 even though it seems that way.)  

 

You can search other topics for helpful info but direct replies to your post will appear under your post.  Unless you changed the default notification settings, you will get an email notification of any replies.  

 

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@hjw77 wrote:

Thank you for the reply. My source is from PA Department of Revenue: "All housing allowances provided by the congregation to clergy are taxable as compensation, as cash is always taxable."

 

https://www.revenue.pa.gov/FormsandPublications/PAPersonalIncomeTaxGuide/Pages/Gross-Compensation.aspx#:~:text=All%20housing%20allowances%20provided%20by,as%20cash%20is%20always%20taxable.

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I will ask @TomD8 to comment further on the reciprocal agreement.

 

In general, my understanding of the reciprocal agreement is that if you live in PA and work in NJ, you only file a PA tax return.  (Technically, if you had other NJ income that was not compensation, that is taxed in NJ.  That might be real estate income or a lottery win.  But if your only NJ income is "compensation" then you don't file an NJ return at all.)

 

https://www.nj.gov/treasury/taxation/njit25.shtml

 

The fact that PA has a different definition of taxable compensation than the IRS or New Jersey works against you here.  Your cash housing allowance is considered by PA (where you live) to be part of your taxable compensation, so that's how you file.   You will pay PA state income tax on your housing allowance, even though it is excluded from your federal taxable income.  You do not file a New Jersey tax return at all, unless you have other New Jersey sourced income.  (Basically, you are always taxed first according to the laws of the state where you live, then you may or may not be taxed by the state where you work, depending on various laws and reciprocal agreements.)

 

I have never encountered this scenario before so I don't know if the PA state income tax module in turbotax will automatically add back your housing allowance, or if you will need to manually add it back.  The state module will have one or more pages of "state specific additions and subtractions to income" and you should review those carefully. 

@hjw77 --

 

See this:  How is the income of a clergy member taxed? (custhelp.com)

 

Since your housing allowance is "compensation", it is fully taxable by PA (and not by NJ).  Therefore you should ask your employer to withhold PA income tax only.  The PA/NJ reciprocity agreement applies to all "compensation."

 

If you have not already done so, you should file NJ Form 165 with your employer.  Here's a link to the form:

https://www.nj.gov/treasury/taxation/pdf/current/nj165.pdf