@pauloclayton wrote:
Thanks. Yeah, this has been my full-time job for 16 years, and it’s always been based on W-2 compensation. I appreciate the insight!
This is the best clergy tax guide, you may have to register to download it, but your denomination may already have a membership in the organization.
https://www.ecfa.org/ProductDownload.aspx?ProductID=347
You must be in a religious position, not merely a church employee, but someone who serves in ministry, performs sacraments, and has some control or direction over the church ministry. You may need to be ordained, or meet other conditions of your church. But an ordained minister who is working as a janitor is not clergy for income tax purposes even though they are ordained, it depends on a person's duties. Most clergy are considered common law employees, meaning they get a W-2, but they are exempt from federal, state and employment tax withholding, meaning that their wages will be in box 1, but boxes 2-6 will be blank. Instead, the pastor pays self-employment tax on schedule SE for their wage income.
The pastor can also have a non-taxable housing allowance (if you don't, you need to set that up, it's a big tax advantage) or can live in a parsonage tax-free. The value of pastor housing is not counted as taxable wages for income tax, but is counted as compensation subject to self-employment tax. So it's important to understand the difference between taxable income subject to income tax, and compensation subject to self-employment tax.
Now, for work-related expenses, employees can't deduct such expenses from their taxable income because of the tax reform law of 2017. (Expenses used to be deductible using form 2106 and schedule A.) However, pastors can still deduct work-related expenses from their compensation subject to self-employment tax on schedule SE.
The standard way to do this is by entering the expenses as an adjustment on line 5C of the Schedule SE Adjustment Worksheet. This is only directly accessible using Forms mode in the desktop version of Turbotax, installed on your own Mac or PC from a CD or download. Forms are not directly editable in Turbotax online. Keep copies of your expense records for at least 3 years in case of audit.
I seem to recall that Turbotax has added a question to interview mode to cover clergy expenses, but I have not tested it this year. If present, it would probably come up when you enter your housing allowance or parsonage value. (Enter your W-2, check the box for religious wages, and answer the followup questions.). I will try and remember to look for it later.
Remember this is not available for persons who work for churches but are not "clergy" as defined above. If you work for a church in a non-clergy capacity, you follow the same rules as any other employee of a secular organization.
