I am a pastor, but my church does not want to hire me. Instead, we have a contract and I receive a 1099 MISC. How do we handle "housing allowance?" What should enter in Box 7 of 1099 MISC? How should the church report the two separate numbers when they file taxes?
When you receive a Form 1099-MISC Box 7 and not a W-2, Enter the 1099-MISC as business income. For the principal business code, use 813000 (religious organization). After you enter that business code you will get a screen about clergy income. Select "I Need to Pay Self-Employment Tax on This Income." The next screen will ask you to enter the amount of your housing allowance. Continue through the business interview and enter your 1099-MISC.
You can go directly to the area to begin to enter your income and expense for your pastoral self employment.
When you receive a Form 1099-MISC Box 7 and not a W-2, Enter the 1099-MISC as business income. For the principal business code, use 813000 (religious organization). After you enter that business code you will get a screen about clergy income. Select "I Need to Pay Self-Employment Tax on This Income." The next screen will ask you to enter the amount of your housing allowance. Continue through the business interview and enter your 1099-MISC.
You can go directly to the area to begin to enter your income and expense for your pastoral self employment.
First, read this. http://www.ecfa.org/PDF/2016-Preparing-Tax-Returns-For-Clergy.pdf
Second, if you act under the control of the church or denomination (directly or via a board of elders, etc) then you are a common law employee. What you are saying is that they don't want to do the paperwork to employ you properly. Time for a sermon on stewardship.
The church can designate part or all of your pay as a housing allowance. The housing allowance is subject to self-employment tax but not income tax. The designation must be in advance and in writing (such as in the board minutes, a resolution, or your contract.)
The housing allowance is not reported to the IRS by the church in any format. Your wages, if they are paying you as an independent contractor, should be reported in box 7 of a 1099-MISC form, with a copy to you and a copy to the IRS.
You then report self-employment income in turbotax. Use job code 813000. This will bring up a question about self employment tax (pay on both) and a question for the amount of your housing allowance. You self-report the housing allowance.
Note that if you have work-related expenses such as mileage or supplies, you have to adjust your deduction by the percentage of income that is non-taxable housing allowance. If 40% of your income is non-taxable housing allowance, then 40% of your work expenses are not deductible (you would only list the other 60%). This is known as the Deason rule, and to properly comply you would need to print your return, attach a statement showing how you calculated the deductible part of your expenses, and file by mail.
If you are still out there, I would like a point of clarification. It seems when I fill out my 1099misc with box 7 having my housing allowance amount and fill out the housing allowance after following the steps included I am taxed twice. Do I leave box 7 on the 1099 MISC blank and only report the housing allowance in the field generated when I state that I am a "813000" type of business?
@SteveCDA wrote:
If you are still out there, I would like a point of clarification. It seems when I fill out my 1099misc with box 7 having my housing allowance amount and fill out the housing allowance after following the steps included I am taxed twice. Do I leave box 7 on the 1099 MISC blank and only report the housing allowance in the field generated when I state that I am a "813000" type of business?
Your housing allowance is not reported on any tax document. If your housing allowance is reported in box 7, the church needs to issue a corrected 1099-MISC. The 1099-MISC should only report your taxable wages not including the housing allowance.
I'd like to anticipate this same situation as a clergy under contract for 2020. I've looked at the 1099-MISC for 2020, and there is not no longer a line 7 for nonemployee compensation. Will the church use line 3 for "Other income"? And will it report base salary only? No reporting of Housing Allowance at all?
@paulnue wrote:
I'd like to anticipate this same situation as a clergy under contract for 2020. I've looked at the 1099-MISC for 2020, and there is not no longer a line 7 for nonemployee compensation. Will the church use line 3 for "Other income"? And will it report base salary only? No reporting of Housing Allowance at all?
For 2020, the IRS has created a new form called 1099-NEC, specifically for non-employee compensation (compensation for work performed when the worker is not an employee). Non-employee compensation will be in box 1 of form 1099-NEC. 1099-MISC will only be used for other kinds of taxable payments (royalties, prizes, etc.)
My previous comments still hold: most pastors are not 1099 contractors. If your position is under the control of the church or denomination (directly or via a board of elders; they hired you, set your hours, and can fire you or "revoke your call") then you are a common law employee and must be given a W-2, even though you are considered self-employed for some income tax purposes. You might legitimately be a contract pastor if you are a vacation fill-in or something like that, but probably not if you are the regular pastor.
A housing allowance must be approved in advance and in writing by the church (or their designated board of elders, etc.) Therefore, it is not clear to me that it is even legal to be a "self-employed" 1099 pastor and receive a housing allowance--how can you be self-employed but still have a board that can legally vote a housing allowance--but I haven't seen any Tax Court cases denying it. Once the housing allowance is approved in advance and in writing, it is not reported on any tax forms, it should not be included in your 1099-NEC box 1 compensation. The church should report it separately in a letter or memo from the finance committee or treasurer. You are required to voluntarily report the housing allowance on your tax return. The housing allowance is subject to self-employment tax but not income tax.
As stated above, if you are paid on a 1099-NEC, you will need the self-employed version of Turbotax. Start the business section and use code 813000. This will trigger a question about your housing allowance. Most of the time you will check the box for "pay SE tax on both compensation and housing" and you enter the amount of your housing allowance and the amount of your qualified expenses. (Your qualified expenses can't be more than the housing allowance. If the expenses are less than the housing allowance, the difference is added to your taxable income as well.)
You will want to review the tax resources at ECFA.org, your denomination may be a member allowing you free or discount access.
https://www.efca.org/resources/document/preparing-tax-returns-clergy
I have a client who is ordained, performing ministerial duties as a pastor for a parachurch organization. He will receive a 1099NEC and they plan to designate a housing allowance. I have not run into this before with all the pastor taxes we do here. I wasn't even sure it was legal. I see the answer you gave about churches issuing 1099's but in this case it is a parachurch organization so I guess their board will vote on the housing allowance amount.
@fct Jenn wrote:
I have a client who is ordained, performing ministerial duties as a pastor for a parachurch organization. He will receive a 1099NEC and they plan to designate a housing allowance. I have not run into this before with all the pastor taxes we do here. I wasn't even sure it was legal. I see the answer you gave about churches issuing 1099's but in this case it is a parachurch organization so I guess their board will vote on the housing allowance amount.
I want to emphasize I am not an attorney. I just have a decent amount of experience as a church treasurer and amateur tax person.
As I noted, it seems to me that anyone who is subject to a board that has authority to vote on an housing allowance, must therefore be a common law employee. However, your client would not be the first to have a housing allowance and be paid on a 1099 instead of a W-2. The organization may be avoiding unemployment tax and worker's comp premiums, depending on the state, or they may just be ignorant. The real question would be whether the pastor is harmed in any way by being treated as an independent contractor. The answer is much less clear cut than the case of other workers who might be denied state-required benefits and the employer half of the employment taxes. It would be up to the minister to complain to their state board of labor if they thought it was a problem.
I need help. My husband and I were both hired at a church (he was worship pastor, and I was Children's Pastor). We each received a 1099-NEC. The total in box 1 also included our housing allowing (pre-determined and in writing already). Can I enter a lower amount for box 1 when I enter my 1099 information and then enter the appropriate amount in the housing allowance box? I am so confused. We have already received W2s at our prior church and this makes no sense.
Enter the 1099-NECs exactly as you received them - the IRS got a copy of the form that you received and will be expecting you to report the same figures on your return.
The amount reported in Box 1 of the 1099-NEC will be subject to income tax and self-employment tax. See How do i enter my Minister's Housing Allowance that is associated with a 1099 Misc
Since the housing allowance is exempt from income tax (not employment tax), you'll have to make an adjusting entry to remove the housing amount from your taxable income.
To enter the adjustment:
Go to Less Common Income, Miscellaneous Income and Other reportable income. Enter "Lawsuit settlement" in the Search Box and Select "Jump to lawsuit settlement" "to get to this screen ("Lawsuit settlement" is just an effective search term to get to this interview screen)
Continue to the screen "Other Taxable Income". Enter the description as "Housing Allowance Reported Elsewhere" and the amount as a negative number. Entering "-$ XXXX" here will offset the housing allowance amount included on the Form 1099-NEC.
A corresponding negative amount will be entered on line 8 of Schedule 1.
My ordained clergy husband was employed by 2 501c Ministries in 2020 and both gave us a housing allowance for clergy employment. One sent us a W-2 with Salary in box 1 and housing in box 14. The other ministry sent us a W-2 with box 1 blank and housing allowance in box 14. The problem is we can't efile now cause the box 1 is blank on that w-2. Was that ministry required to file a w-2 since no salary? Could we ask them to somehow amend so we don't have a w-2 and report the housing ourselves? My husband also has a form 4361 for clergy exemption on clergy employment for SE taxes. We only use the lesser of Fair Market Value or what we actually spent on housing expense. But we always estimate high then what we don't use goes back into our income. Just don't know how to efile now so any advice would be helpful! Thank you!
You can remove that second W-2 and just report the housing allowance. First delete the W-2 then follow these instructions.
If you're not already on the W-2 entry screen, open your return. (To do this, sign in to TurboTax and open or continue your return) Then search for W-2 and select the Jump to link in the search results. Follow the instructions to import or manually enter your W-2.
When you see the Your W-2 info so far screen, select Edit to view your W-2 information. If the Box 1 amount hasn't been adjusted for your housing allowance, enter a Line 21 adjustment to income. Here's how:
The two W-2s are from two different Ministries. So I delete the W-2 with no salary in box 1 and only Housing Allowance in box 14? Then enter the W-2 from the other ministry that has salary box 1 and housing box 14? Where would I enter our Housing allowance for the deleted W-2? I'm not really understanding the instructions.
@Nwasher1 You could combine the Housing Allowance from both W-2's into one amount when you make your W-2 entry.
Click this link for detailed info on Ministers and Taxes.
Also see the posts from @Opus 17.
[Edited 2/18/2021 | 10:43 am]
@Nwasher1 wrote:
My ordained clergy husband was employed by 2 501c Ministries in 2020 and both gave us a housing allowance for clergy employment. One sent us a W-2 with Salary in box 1 and housing in box 14. The other ministry sent us a W-2 with box 1 blank and housing allowance in box 14. The problem is we can't efile now cause the box 1 is blank on that w-2. Was that ministry required to file a w-2 since no salary? Could we ask them to somehow amend so we don't have a w-2 and report the housing ourselves? My husband also has a form 4361 for clergy exemption on clergy employment for SE taxes. We only use the lesser of Fair Market Value or what we actually spent on housing expense. But we always estimate high then what we don't use goes back into our income. Just don't know how to efile now so any advice would be helpful! Thank you!
Enter the W-2 with wages first. Check the box for "religious wages" on the page of special circumstances. Enter the combined total of both housing allowances there. (Box 14 is not enough. Turbotax won't pick it up automatically from there.) Then enter your qualified housing expenses, and check the box for your exemption due to form 4361. You will pay income tax on the wages plus any housing allowance that is more than your qualified expenses, and you won't pay SE tax. You don't need to enter the other W-2 if it only has a housing allowance.
@Nwasher1 wrote:
The two W-2s are from two different Ministries. So I delete the W-2 with no salary in box 1 and only Housing Allowance in box 14? Then enter the W-2 from the other ministry that has salary box 1 and housing box 14? Where would I enter our Housing allowance for the deleted W-2? I'm not really understanding the instructions.
Turbotax only has one field to enter the housing allowance anyway. I'm pretty sure that if you did enter 2 W-2s, the second amount of housing allowance would be ignored, or would replace the first. Turbotax is not 100% thought out for clergy wages, although it is better than it used to be. Simply add the 2 housing allowance amounts together and enter them as part of the W-2 interview for the W-2 that has box 1 wages.
@MarilynG1 , although the older posts talk about self-employment, the current person we are talking to @Nwasher1 has 2 W-2s. There is no benefit to creating a schedule C, and in fact it may do more harm than good.
A pastor who has only housing allowance, and no taxable wages, must create a schedule C in order to trigger the housing allowance question. Here, since @Nwasher1 has one W-2 with taxable wages, the simplest thing to do is just combine the 2 housing allowance amounts and enter them with the first W-2, and then not enter the second W-2 at all.
@MW1013 wrote:
I need help. My husband and I were both hired at a church (he was worship pastor, and I was Children's Pastor). We each received a 1099-NEC. The total in box 1 also included our housing allowing (pre-determined and in writing already). Can I enter a lower amount for box 1 when I enter my 1099 information and then enter the appropriate amount in the housing allowance box? I am so confused. We have already received W2s at our prior church and this makes no sense.
I respectfully disagree with the Turbotax employee. While the adjustment will get the figure right for e-filing, it's not allowed under the law, and the IRS could come asking questions. Your 1099 is simply incorrect, the church should NOT report the housing allowance included in the wages, box 1 should be the taxable wages only. Your church needs to issue a corrected 1099 to each of you.
In fact, if your position is answerable to the church (such as via a board of elders, an administrative council, or so on) then you are common law employees and the church is required to issue a W-2 and not a 1099. Box 1 will have your taxable wages, box 2 can have federal tax withholding (this is optional, but you and the church can agree to do this) and boxes 3-6 are blank since your wages are not subject to FICA or Medicare tax. Your housing allowance can go in box 14 or can be reported in a separate memo. The church files a form 941 or 944 to report wages to the IRS. It doesn't change your tax owed, but the church may have other responsibilities to employees under state law. (For example, in NY, employees must receive a paystub each payday with certain required information, and I believe the fine is $50 per employee per paycheck for failing to provide a proper pay stub.) Your state may require the church to provide compensation, worker's comp insurance, or other benefits to employees. Minimum wage and other wage & hour laws may apply to you, and if the state decided to get picky, the church could be at risk. At the risk of being "preachy", Stewardship starts at home, and your finance people need to get it right. Here is a good resource.
https://go.efca.org/resources/document/preparing-tax-returns-clergy
Now, assuming you get corrected 1099s and not W-2s this year, this is what you need to do.
Because Turbotax changed the 1099 workflow, you must create a small business for spouse #1 first. Use job code 813000, which will trigger the program to ask about your housing allowance. Then enter income for spouse #1, including these wages and any side income. You can also enter work related expenses, but you must reduce your expenses according to the Deason rule (explained below). Then finalize small business #1, and go back and start over and create a small business for spouse #2, also using job code 813000. Enter income and expenses. Then you can go on to the rest of the tax return (itemized deductions, dependents, etc.) If you enter the 1099's directly, the program may not ask about your housing allowance and may not create a schedule SE for your self-employment tax, so set up the businesses first.
Regarding your housing allowance, you can't use the same qualifying expenses twice. For example, if spouse #1 has a $10,000 housing allowance and spouse #2 has a $15,000 housing allowance, but your total qualifying expenses are only $18,000, then you would enter $10,000 for spouse #1 and $8,000 for spouse #2 and the excess housing allowance becomes taxable income. (Or you could enter $15,000 of expenses for spouse #2 and $3000 of expenses for spouse #1, it doesn't matter on a joint return how you split them up, but you get the idea.)
The Deason rule says you must adjust your work-related expenses to take account of the fact that your housing allowance is non-taxable. For example, if you have wages of $10,000 and a housing allowance of $15,000, then since only 40% of your income is taxable wages, you can only deduct 40% of your expenses (mileage, etc). You must do the calculation and enter the adjusted figure, Turbotax does not include this calculation. You are supposed to file by mail and attach a written explanation of your expenses and the calculation, but you are probably safe to e-file as long as you save proof of your expenses and how you calculated the deductible part in case of audit.
Thank you so much for clarifying this! You're correct that we did NOT receive a 1099-misc. I deleted the W2 with no salary(all boxes are empty except for box14-housing) and entered the W2 that has salary and housing. When I continued through the screens it did bring up a screen to enter housing amount. I combined both housing allowances and entered the total. Then entered the amount of housing we actually used and yes the difference was added back to our income total. The result of our refund stayed the exact same after these steps so the calculations must be correct.
My only question now is will this trigger a delay in processing when the IRS system tries to match the deleted W2 to our return?
I don’t think so. If the W-2 only has box 14 and nothing in box 1 or 16, there’s nothing to match. It probably shouldn’t have even been issued.
Does the IRS get the actual W-2 or just the income amounts from the Social Security department? I know the Social Security department gets a W-3 with amounts when a business fills out a W-2 and sends it.
I don’t actually know the exact details, although the IRS must get much more than just boxes 1 through 6, because the several of the codes in box 12 and the retirement check box 13 can significantly impact your federal tax return. However, box 14 is a general memo field and employers can put anything in that box that they want to. Some items in box 14 are recognized by TurboTax, I think when states have designated certain items be put there.