I am a pastor, my employer sent me a W2, but does not withhold for Social Security (SE) tax. How do I allocated my tax refund in turbotax to cover the necessary SE taxes?

[cbansell]

I believe I am considered a "contractor" which is why I received a W2, but also need to pay my own social security at the 15.3% rate I just adjusted the W2 to mark religious employment. When I added in my housing allowance, I initially left the "qualifying expenses" blank, which made my tax owed skyrocket. It appears that if I used the fullness of my housing allowance these two cells would show the same number? That seemed to level out my taxes to where I would expect.

[KatherineC · Accepted solution]

As clergy, Social Security and Medicare are not withheld from your wages.  So you have to report your income a little differently.

I'm going to include the directions for reporting Form W-2 plus housing:

• You will report your Form W-2 under Wages & Income in the Wages and Salaries section.
• Once you have reported your W-2 information, exactly as it appears on your Form W-2, click continue.
• You may be asked to verify some numbers. 
• Keep going until you get to the page titled “Do any of these uncommon situations apply to this W-2”?
• Click the box beside Religious Employment.  See Screenshot below
• You will be asked about your religious employment.
• Next, you will have a box to enter your housing allowance, if any, as well as your qualifying expenses (click on the blue Learn More for further information).
• Enter your housing allowance amount and how much of the allowance you actually used on your housing.
• On the following page, you will be asked what amount(s) should have self-employment taxes calculated for. See the second Screenshot below
  
• If you had Social Security and Medicare withheld from your wages, you would need to indicate to pay self-employment taxes on the housing allowance only.  If you did not have Social Security and Medicare withheld from your wages, indicate that you need to pay self-employment tax on wages and housing allowance.
• Click continue and you are done!

For further information, click here.

[Opus 17]

Clergy are considered self-employed for certain tax purposes and are responsible for paying their own SE and income tax, but if you answer to a board, the congregation or denomination then you are a common law employee for most other legal purposes and should receive a W-2.

This has a lot of helpful information. <a rel="nofollow" target="_blank" href="http://www.ecfa.org/PDF/2016-Preparing-Tax-Returns-For-Clergy.pdf">http://www.ecfa.org/PDF/2016-Prep...>

[cbansell]

Thank you for the link. This is my first year reporting in this manner, wanted to make sure I got it right.

[joemilu2004]

I have a question in regards to this question. My husband received a w-2 for his clergy salary. he did have social and medicare tax withheld. I have entered his information, click on religious employment. clicked on income for clergy employment. he did not have housing allowance, therefore I put the rent and utilities under qualifying expenses. but now on the clergy self employment tax should i choose social and medicare taxes have been withheld or pay tax on housing allowance only?? 

[Opus 17]

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@joemilu2004 wrote:

I have a question in regards to this question. My husband received a w-2 for his clergy salary. he did have social and medicare tax withheld. I have entered his information, click on religious employment. clicked on income for clergy employment. he did not have housing allowance, therefore I put the rent and utilities under qualifying expenses. but now on the clergy self employment tax should i choose social and medicare taxes have been withheld or pay tax on housing allowance only?? 

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Print this out and review it later.  Also, talk to the church about establishing a housing allowance it's a big tax savings.  And, they're filing their own tax paperwork wrong by withholding SS and Medicare tax.

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

In your situation (SS and Medicare tax were withheld and you received no housing allowance) then either,

1. Don't check the box for religious wages.  It gives you no tax advantage and is not necessary since the church is paying you wrongly, or

2. Check the box for religious wages.  If you have zero housing allowance, it doesn't matter if you enter expenses, since housing expenses are not deductible for clergy and entering them will change nothing.  (Clergy housing can be excluded if a proper housing allowance is in place but that is not the same as a deduction.)  Check the box for "withhold SE taxes on housing allowance only" since the employment taxes were already withheld from wages.  (That may create a schedule SE that is all zeros or blanks, and may create an e-file error.  You'll have to see what happens when you get to the end.)

[gray16]

Thank you for this post. I am wondering which turbotax edition to purchase for this particular situation. Do we need the self employed one or can we use the the Premier (we have rental income)? Thanks!

[Opus 17]

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@gray16 wrote:

Thank you for this post. I am wondering which turbotax edition to purchase for this particular situation. Do we need the self employed one or can we use the the Premier (we have rental income)? Thanks!

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I don't know what you mean by "this situation" because the person who started the topic and one of the commenters below had very different situations.  for Turbotax Online, any version of Turbotax from Deluxe or higher can handle clergy wages on a W-2.  If you need Premier for your rental income, that would also include all the features of Deluxe.  If you also have side-income you need to report (such as from weddings and funerals) that would require a schedule C, and you would need to upgrade to the Self-Employment version.  

For the desktop version installed on your own computer from a CD or download, all the versions from Deluxe and higher contain all the tax forms for rentals and self-employment; premier and Home & Business have more built-in assistance but you can prepare a schedule E and schedule C in the Deluxe version.  

You can't deduct work related expenses from your taxable income any longer as that deduction was eliminated in the 2018 tax reform law.  However, you can still deduct work-related expenses from your income subject to self-employment tax, by making a manual adjustment to one of the worksheets.  That can only be done in the desktop versions of the program.