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ppajjohn
New Member

Clergy questions

I receive a housing allowance from my employer, but I also receive wages (on a W-2).  On the W-2, there is federal income tax withheld, but no social security or medicare.  So how do I answer this question:

1. Pay self-employment tax on wages only

2. Social Security and Medicare taxes have been withheld

3. Pay self-employment tax on housing allowance only

4. Pay self-employment tax on wages and housing allowance 

7 Replies
DeanM15
Expert Alumni

Clergy questions

Clergy are taxed differently on the W2 than regular W2 workers. You should choose option #4. 

 

The Church or Ministry does not pay Social Security or Medicare taxes for the Clergy and that information is missing from the W2. Self Employment tax is essentially Social Security and Medicare taxes. The rate is doubled as you are paying both your share and the employer share. 

 

The housing allowance is not taxed for Income Tax purposes, as long as certain guidelines are followed. The housing allowance is, however, taxed for Self Employment (SS and Medicare) tax purposes. Most employers put the housing allowance on line 14 of the W2. 

 

You can find out more information here

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landress1999
Level 2

Clergy questions

We live in a parsonage rent free as a part of my husband's ministry position. The church also has set aside a housing allowance in our salary to cover utilities.  The housing allowance is listed on line 14 of our W2.  I know I need to somehow include the fair rental value of the parsonage, but this is not listed on line 14 of our W2.  How do I include the housing allowance AND fair rental value in turbotax?

DMarkM1
Expert Alumni

Clergy questions

After entering the W2 you will get to a follow question about the W2.  Select the "Religion..." button.  That will take you to the interview to enter both the housing allowance and the qualifying expenses.  I suggest entering the "fair rental value" in the first box and the "housing allowance for utilities" in the 2nd box.

 

 

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jkrause
New Member

Clergy questions

Another use case, help is greatly appreciated.

 

Wife is member of clergy.  She was paid $30k for housing allowance, our qualifying expenses are $10k.  We live in our own home and pay mortgage.

 

Should Parsonage or Housing allowance be: 30k?  or 20k (30k-10k)?

Qualifying Expenses should be 10k, right?

DMarkM1
Expert Alumni

Clergy questions

You should enter the housing allowance in the top box (Housing Allowance) and enter qualifying expenses in the 2nd box (Qualifying Expenses).  

 

 

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Opus 17
Level 15

Clergy questions


@landress1999 wrote:

We live in a parsonage rent free as a part of my husband's ministry position. The church also has set aside a housing allowance in our salary to cover utilities.  The housing allowance is listed on line 14 of our W2.  I know I need to somehow include the fair rental value of the parsonage, but this is not listed on line 14 of our W2.  How do I include the housing allowance AND fair rental value in turbotax?


I suggest entering the "fair rental value" in the first box and the "housing allowance for utilities" in the 2nd box.

 

@landress1999 @DMarkM1 This answer is incorrect.

If the clergy person receives both a rent-free parsonage and a separate cash allowance for utilities and other expenses, then the "housing allowance" provided by the church is the fair market value of the parsonage PLUS the cash amount, and the entire amount is subject to self-employment tax.

 

The fair market value of the parsonage is what it would cost to rent a similar house in the same neighborhood in similar condition.  Normally, the church is required to determine that and provide the information to the pastor.  A real estate agent might give an opinion, or you could check Craigslist and other sources.

 

For the first value, "housing or parsonage allowance", enter the total of the FMV of the parsonage plus the cash allowance.  For the second value, "qualified housing expenses," enter the total of the FMV of the parsonage plus the expenses for utilities and other qualified housing expenses (but the second value can't be larger than the first value, only less than or equal to.)

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
Opus 17
Level 15

Clergy questions


@jkrause wrote:

Another use case, help is greatly appreciated.

 

Wife is member of clergy.  She was paid $30k for housing allowance, our qualifying expenses are $10k.  We live in our own home and pay mortgage.

 

Should Parsonage or Housing allowance be: 30k?  or 20k (30k-10k)?

Qualifying Expenses should be 10k, right?


Are your expenses really only $10,000?  Your housing expenses include:

  • Fair rental value of the home (what it would cost to rent a similar home in the same neighborhood in similar condition 
  • Utilities
  • Property taxes
  • Furnishings
  • Food spent entertaining church members, hosting dinners and small groups, etc.

(Note that your mortgage payment is not a qualified expense, instead, you use the fair rental value.)

 

If your expenses really are less than the housing allowance, the excess housing allowance is added back to your taxable income. 

 

See this for more.  

http://www.ecfa.org/PDF/MinTax_Preparing_2019.pdf

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
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