I am a youth pastor of a church so I am not "self employed" and needing help on answering the question about "Clergy self-employment tax".

[Jtrapp098]

I am part-time and have no housing allowance.

[Opus 17 · Accepted solution]

If you are a pastor and performing religious duties, then you are self-employed for income tax purposes and you should not have social security and medicare taxes withheld.  You will still receive a W-2 as a common law employee but boxes 3-6 will be blank.  If they are not blank, then your employer is treating you as a regular employee (like a secretary or maintenance person) who does have SS and medicare tax withheld even when working for a church.

If you check the box in turbotax for religious wages, but you have box 4 and box 6 taxes, turbotax will get confused and not do your taxes properly.

Your church may be paying you as a lay employee even though your title is "pastor."  Titles are not important, what makes you a clergy person for IRS purposes is a 4 point test; you administer the sacraments, are considered to be a religious leader by your church, conduct worship services, and have management responsibility in the control, conduct, or maintenance of your congregation.  You don't have to meet all 4 tests strictly, but those are the factors.  If your church is paying you as a lay person, then don't check the religious wages box.  You would subject to the normal tax rules for ordinary workers instead of the special clergy rules.

See this for clergy tax issues.  Then check with your church treasurer, or denominational tax expert, or a tax professional who understands clergy wages, if you need clarification.  http://www.ecfa.org/PDF/2016-Preparing-Tax-Returns-For-Clergy.pdf

[Jtrapp098]

Perfectly Clear now thank-you very much!

[ecosse]

If a church withholds SS and Medicare from an ordained pastor (and pays the other half), does it mean they are an employee? Can they not claim the housing benefit?

[Opus 17]

@ecosse It means the church is badly screwing up their tax filing and needs to see a professional to get it fixed.

Any pastor who answers to their local church (via direct congregational vote or through a board of elders, deacons, or answers to the denomination (district, bishop, etc) is a *common law employee* and should receive a W-2. However, only wages should be in box 1, with no withholding in boxes 2-6.

Even if the church is deducting (incorrectly) FICA and medicare tax, the church can still declare a housing allowance and provide that part of the income to the pastor tax-free.  A housing allowance must be designated in writing and in advance by the church board.  It must not be included in W-2 box 1 wages.  It is reported separately in box 14 of the W-2 or by a memo to the pastor.  In Turbotax, if you have FICA withheld and also have a housing allowance, you would check the box for "pay SE tax on housing allowance only."  (This is the rare case where that box is used.)

If the housing allowance is included in the box 1 wages then it is taxable.  There is no way to get it tax free without having the church issue a corrected W-2 that removes the housing allowance.  (And remember, the housing allowance still must have been designated in advance and in writing -- if not, housing is fully taxable.  It can start to be tax-free going forward if the board adopts an appropriate resolution.)

If your housing is included in your W-2 wages, you and the church treasurer may need to seek assistance from a tax professional to correct your W-2 and form 941 filings over the past year.

[ecosse]

@Opus 17 Thank you for your input. The housing allowance is properly declared and shown in box 14. What would you do about the withholding shown in the boxes?

[Opus 17]

If you have FICA and medicare withheld in boxes 3-6, then enter your W-2 as written.  On the page of special circumstances, check the box for religious wages.  You will be asked how you want to pay SE tax -- check "pay SE tax on housing only".  Then enter the amount of the housing allowance and qualified expenses.  This should result in you paying the FICA and medicare on your wages and the SE tax on the housing only so you aren't double-taxed on your wages.

See if you can get the church to fix it for 2018 though.

[ecosse]

@Opus 17 What about the portion that the church has been contributing to FICA (they withheld half, and contributed the other)? Is it claimed as income?

[Opus 17]

I wouldn't worry about that.  Technically, the entire amount is income but then when figuring the SE tax, you get a partial deduction that accounts for the amount that a regular employee has paid on their behalf.  So just reporting the income without the counter deduction will result in you overpaying.

I also don't know how the church could fix since, even if they filed amended form 941 or 944 to remove the withholding and got a refund from the social security administration, any money they refunded to you would be income in 2018 under the cash basis accounting rules.

For 2017 I would just stick with the W-2 as written and pay SE tax on the housing allowance only.  Make sure the church fixes the issue in 2018 -- they may not have even filed the first quarterly form 941 yet and even if they did it's much less complicated to amend that and refund the 2018 withholding to date.

If you really want to try and have the church correct the 2017 filings, you will need the help of a CPA who deals with churches and you probably need to file an extension on your personal tax return while things get straightened out.  I'm not sure it's worth it.

[CherylW]

If you receive a W-2 from the church where you work, then you are considered a common-law employee, and social security tax is withheld from your wages. 

The box that you're asking about shouldn't be checked if your W-2 has Social Security tax withheld (Box 4) and Medicare taxes withheld (Box 6). 

For more guidance, see this from the IRS. 

[Jtrapp098]

Thank-You I presume I was 2nd guessing myself and wanted to be sure!

[CherylW]

Glad to help!