Clergy, Social Security & Medicare Taxes withheld under Federal Income Tax on W2 But No Schedule SE was Filed

[hjw77]

Hi, I’m an ordained pastor who began my job in 2024 and receiving W2, with salary and housing allowance (my sole income is from the W2). My employer (the church) asked payroll to withhold my Federal income tax (calculated using salary) + Social Security and Medicare taxes (15.3%, calculated using salary + housing allowance) all under Federal income tax withheld (box 2 on W2) and therefore I did not use 1040-ES to file my quarterly SECA taxes in 2024.

Due to inexperience (both my employer and myself), I was under the impression that the additional Social Security and Medicare taxes withheld under Federal income tax would’ve been “automatically moved/reassigned” to cover my SECA tax liability (boxes 3, 4, 5, 6 are all zero on W2).

Therefore, when I was filing my 2024 tax this year, when asked by TurboTax’s interview questions, “Now tell us about your clergy self-employment taxes. Your clergy housing allowance and wages are subject to Social Security and Medicare taxes (commonly called self-employment tax). How should we calculate these taxes?”, I chose the option “Social Security and Medicare taxes have already been withheld” and filed my taxes. I didn’t even know that a Schedule SE was not included by TurboTax.

Only when I was informed by SSA this month that I’ve never paid any SS & Medicare taxes in 2024 did I realize that I now owe SECA taxes for the entire year of 2024.

Is there anyway I can amend the 2024 tax to include Schedule SE so that the correct amount of the SECA taxes can be “moved/reassigned” from the already withheld Federal income tax to cover my SECA liability? 

When I tried the Amend function in TurboTax, the only option I could find is changing my choice of the above mentioned TurboTax interview question “How should we calculate these taxes?” to “Pay self-employment tax on my wages and housing allowance.” But my question is: since I already had my SS & Medicare taxes withheld along with my Federal income tax, will this option calculate more SECA taxes than I should pay?

And honestly, I’m not even sure if this is the correct way to use the Amend function to address my problems.

I’m quite desperate as I know there will already be penalty on my SECA liability. Please let me know how I could proceed (with TurboTax) to address this issue. Your help is greatly appreciated!  

[pk]

@hjw77 , 

while I don't know a whole lot about clergy and tax, the fact that W-2 is issued kind of clouds the situation. I say this because W-2 implies employee status, the employer withholds  FICA, Federal and State taxes.   If your employer has indeed withheld your FICA taxes ( and contributed  at 50% towards the FICA) then that amount should have shown up on boxes, 3.4.5.6 of the W-2 and the requisite amounts  transferred to the IRS  ( IRS then forwards the FICA/SECA to SSA.   So something is wrong here.

My ref. here is  -->  Topic no. 417, Earnings for clergy | Internal Revenue Service

If it turns out that neither your employer nor you have transferred any of the total SECA ( 2 X FICA), then you do not need to amend your return.  Just go to local SSA office and settle your accounts with them.  There ois generally NO interest or penalty for this. But you should settle with SSA.

Is there more I can do for you ?

[AmeliesUncle]

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@hjw77 wrote:

My employer (the church) asked payroll to withhold my Federal income tax (calculated using salary) + Social Security and Medicare taxes (15.3%, calculated using salary + housing allowance) all under Federal income tax withheld (box 2 on W2) 

I chose the option “Social Security and Medicare taxes have already been withheld” and filed my taxes. I didn’t even know that a Schedule SE was not included by TurboTax.

When I tried the Amend function in TurboTax, the only option I could find is changing my choice of the above mentioned TurboTax interview question “How should we calculate these taxes?” to “Pay self-employment tax on my wages and housing allowance.” But my question is: since I already had my SS & Medicare taxes withheld along with my Federal income tax, will this option calculate more SECA taxes than I should pay?

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You did not have Social Security taxes withheld (boxes 4 and 6 of your W-2).  Your employer just had 'extra' income tax withheld (Box 2 of your W-2) because that can be applied towards the self-employment tax on your tax return.

Yes, you can (and should) amend.  You should select that option to pay self-employment tax on your wages and housing allowance.

It will result in you owing the correct amount of tax.  Because you already filed and did not pay self-employment tax (and likely received a large refund because of the large amount of tax withheld in Box 2 of your W-2), you will likely owe quite a bit when you amend.  But it will be the correct amount.

[Opus 17 · Accepted solution]

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@hjw77 wrote:

Is there anyway I can amend the 2024 tax to include Schedule SE so that the correct amount of the SECA taxes can be “moved/reassigned” from the already withheld Federal income tax to cover my SECA liability? 

When I tried the Amend function in TurboTax, the only option I could find is changing my choice of the above mentioned TurboTax interview question “How should we calculate these taxes?” to “Pay self-employment tax on my wages and housing allowance.” But my question is: since I already had my SS & Medicare taxes withheld along with my Federal income tax, will this option calculate more SECA taxes than I should pay?

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You did not have social security and medicare tax withheld.  If you did, you would have those amounts in boxes 4 and 6.  The employer simply withheld extra federal income tax.

Yes, that extra withholding is applied to your SECA if you file properly.  You have one tax return with one tax bill--the sub-taxes are calculated separately but added together at the end.

You need to file an amended return to report that you need to pay SE tax on wages plus housing allowance.  You will owe a lot more than you did before, but that will be the correct amount.  Suppose your wages were $50,000, and your housing allowance was $20,000.  Your federal income tax might be about $5000 if you are single.  It sounds like you would have had more than $13,000 withheld (12% plus 15%), resulting in a substantial refund.  If filed correctly, you would have calculated $5000 of income tax and $8000 of SECA, resulting in no refund.  If you got that large refund, you have to pay it back, which will put you where you should have been.

And you probably owe more.  In my example above, you pay about 12% federal income tax on $50,000, but you pay 15% SECA on $70,000 (wages plus housing allowance).  If you only had 15% extra federal withholding on the wages, you will owe the 15% SECA on the housing allowance as an additional payment. 

Because you will owe a large amount with the amended return, you may receive a notice for penalty and interest, back-calculated to April 15, 2025 (the 2024 deadline).  Combined the penalty and interest is about 1-1.5% per month of the amount owed.  But when you get the notice, you can apply for a waiver for cause. 

https://www.irs.gov/payments/penalty-relief

I am more or less an expert here on clergy taxes, was a church treasurer for years. Feel free to post back any followup questions.  We can also talk about best practices going forward.