Both clergy and non-clergy income from same employer

[Mark-David]

For the first two months of 2023, I worked as clergy with my employer. I was laid off but received a severance equivalent to five months salary, plus a payout of benefits.  Almost immediately, I transitioned into an hourly role with the same employer that continues to today.  For 2023, I received only one W-2 from the employer--it records my clergy income, a portion of my (former) clergy housing allowance, and the hourly income and withholding from my current role as well.

Because I have clergy income, I am selecting "pay self-employment tax on my wages and housing allowance" as I have in past years. However, as I understand it, this means I am paying self-employment tax on my hourly employee wage as well, because it's all lumped together on the W-2.

If I had separate W-2 forms for each role--one for my clergy income and one for my hourly employee income--it seems my tax responsibility would be much less.  However, I reached out to my employer and they said only one W-2 can be issued.  Am I just out of luck because my new role happens to be with the same employer as my previous role?  I'd appreciate any suggestions!

[DianeW777]

Yes, you will pay self employment tax on all of your income from this employer because you are considered a 'common law employee' for the church.  You may need to clarify how you could be a clergy employee for part of the year, and then a nonclergy for the remainder of the year.  

• How do I enter parsonage/housing allowance reported on W-2?
• Is my clergy income subject to self employment tax?

That being said, if the church actually removed you from the clergy role and then began paying you as an employee who was not clergy, then they would be liable for the portion of the social security and medicare tax for the nonclergy portion of the wages. For that portion you could file a separate substitute W-2 on Form 4852.  This would allow you to pay only your portion (employee share) of the social security and medicare taxes and the church would be billed for the employer share.  The IRS may question how you can be in two different roles when you are holding the clergy title for part of the year.

• How do I enter a substitute W2?  
  • If you chose to do this for the part of the year you were not considered clergy, but sure to enter it as a second W-2.  Do not include these amounts in the first W-2 entry. This will require you to mail your tax return.  TurboTax will provide the instructions.

Who is a Minister?  IRS Topic 417

According to the IRS, ministers are individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or chard denomination.  They are given the authority to conduct religious worship, perform sacerdotal functions, and administer ordinances or sacraments according to the tenets and practices of that church or denomination.  If a church or denomination ordains some ministers and licenses or commissions others, anyone licensed or commissioned must be able to perform substantially all the religious functions of an ordained minister to be treated as a Minister for Tax Purposes.  See publication 517 

Please update here if you have more questions.