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sballardwaterloo
New Member

My employer paid half of the required 15.3% self-employment tax on my clergy housing allowance. How do I calculate this with turbo tax?

 
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Opus 17
Level 15

My employer paid half of the required 15.3% self-employment tax on my clergy housing allowance. How do I calculate this with turbo tax?

Eventually you will want to read this. http://www.ecfa.org/PDF/2016-Preparing-Tax-Returns-For-Clergy.pdf

Although clergy are considered self-employed for some income tax purposes, they are generally considered common law employees for most other purposes.  As such, your expenses are deducted using form 2106, not schedule C, and you are not eligible for the small business health insurance deduction on schedule C.  You are eligible for the Premium Tax Credit (depending on your income and family size) and any after tax costs for insurance would be a schedule A deduction but only if the premiums are more than 10% of your adjusted gross income.

Regarding the SE tax.  Any compensation, including amounts that are "grossed up" to cover your share of SE tax, must be in box 1 of your W-2 as wages.  For example, if you were to make $500 per week, the church might pay you $535, which you would use to cover half the SE tax.  Typically, you would set this money aside and make an estimated payment to your IRS account.  Here it sounds like they wrote 2 extra checks and kept the money back as withholding.  That's ok as long as they actually submitted the money to the IRS via form 941, so that their form 941s, W-2 and W-3 all match.

You still owe the full 15% SE tax on your wages plus your housing allowance.  You get credit for the amounts withheld, the same as if you had paid it into your own account.  Because your SE tax and income tax are combined into one personal tax bill on form 1040, it doesn't matter that they withheld the money as income tax withholding, it all adds together in the same place.

This is an unusual treatment. It would be more typical for the church to gross up your weekly check by about 7.5% and then make you responsible for the estimated payments.  Or, you can voluntarily particulate in federal income tax withholding each paycheck, via a form W-4 that goes into box 2. (If the church wants to do the paperwork of calculating the withholding and withholding state and federal tax and reporting it on form 941 etc.)

When I took over my church's accounting, we sent the SE tax via check to the pastor's personal IRS account using form 1040-ES (paying it for him directly into his account, instead of using form 941).  I don't recommend this, and I stopped it.  You and the church need to be clear on who is responsible for what in this situation.  The church should not withhold FICA or medicare tax at all -- if they want to withhold federal income tax they can, as long as they credit the money correctly of course, and it all goes toward your final bill one way or the other.
*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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6 Replies
TaxGuyBill
Level 9

My employer paid half of the required 15.3% self-employment tax on my clergy housing allowance. How do I calculate this with turbo tax?

Did they pay it directly to you, or did they pay it to the IRS?

Either way, it SHOULD be reflected on your W-2, so you shouldn't need to do anything with it.
Hal_Al
Level 15

My employer paid half of the required 15.3% self-employment tax on my clergy housing allowance. How do I calculate this with turbo tax?

What documentation (e.g. W-2) do you have that it was paid? Employers do not pay half of "self-employment tax ". They pay half of FICA tax. Although the two are effectively the same; for reporting purposes they are not the same.
Actually churches are exempt from paying the employer half of FICA for church employees. The employee pays his half only.
TaxGuyBill
Level 9

My employer paid half of the required 15.3% self-employment tax on my clergy housing allowance. How do I calculate this with turbo tax?

@Hal_Al   Ministers pay Self Employment Tax, so it is not uncommon for the church to pay half of that.  However, that 'extra' payment is just additional compensation and should have been added to box 1 of the W-2.
sballardwaterloo
New Member

My employer paid half of the required 15.3% self-employment tax on my clergy housing allowance. How do I calculate this with turbo tax?

My employer paid me extra twice over the year and then took that same amount out of my paycheck in those two months marked as federal tax withholding. My W-2 has no amount indicated in boxes 3-6. Federal taxes were withheld from the wages but not the housing allowance. So, my question is what should I mark on the page "Clergy Self-Employment Tax" asking if I want to pay self employment tax on 1) the housing allowance, 2) the wages, 3) both the wages and allowance, or 4) if social security and medicare taxes have been withheld?

Also, if my Clergy income is reported to me via a w-2 and yet treated as self-employment, can I deduct the difference in insurance premiums between what my employer pays and what it costs as an employment expense? If so, where do I claim this? If it were strictly self employment income then it would have been reported on a 1099 and I would have entered it that way and included those payments as self-employment expenses on a schedule C.
TaxGuyBill
Level 9

My employer paid half of the required 15.3% self-employment tax on my clergy housing allowance. How do I calculate this with turbo tax?

"then took that same amount out of my paycheck in those two months marked as federal tax withholding"

That seems to indicate that amount of extra pay/taxes have been added to box 2 (and box 1 if it was done correctly) of your W-2, so it has already been taken care of.  You don't need to do anything else with that, as entering Box 2 of your W-2 takes care of it.

It sounds like you have not elected out of the Social Security system, I think #3 is the correct choice.  However, I'll flag the clergy expert to verify that.   @Opus 17

No, don't enter the health insurance premiums as part of Schedule C (unless you ALSO have other earnings, outside of the W-2 income).  You are an Employee for purposes of Income taxes, but Self Employed for purposes Social Security and Medicare taxes.  The Self Employed Health Insurance deduction only applies to Income taxes, so you can't use that.  You can still enter it as a Medical Expense for Itemizing your deductions, but due to severe limitations, that probably won't reduce your taxes.
Opus 17
Level 15

My employer paid half of the required 15.3% self-employment tax on my clergy housing allowance. How do I calculate this with turbo tax?

Eventually you will want to read this. http://www.ecfa.org/PDF/2016-Preparing-Tax-Returns-For-Clergy.pdf

Although clergy are considered self-employed for some income tax purposes, they are generally considered common law employees for most other purposes.  As such, your expenses are deducted using form 2106, not schedule C, and you are not eligible for the small business health insurance deduction on schedule C.  You are eligible for the Premium Tax Credit (depending on your income and family size) and any after tax costs for insurance would be a schedule A deduction but only if the premiums are more than 10% of your adjusted gross income.

Regarding the SE tax.  Any compensation, including amounts that are "grossed up" to cover your share of SE tax, must be in box 1 of your W-2 as wages.  For example, if you were to make $500 per week, the church might pay you $535, which you would use to cover half the SE tax.  Typically, you would set this money aside and make an estimated payment to your IRS account.  Here it sounds like they wrote 2 extra checks and kept the money back as withholding.  That's ok as long as they actually submitted the money to the IRS via form 941, so that their form 941s, W-2 and W-3 all match.

You still owe the full 15% SE tax on your wages plus your housing allowance.  You get credit for the amounts withheld, the same as if you had paid it into your own account.  Because your SE tax and income tax are combined into one personal tax bill on form 1040, it doesn't matter that they withheld the money as income tax withholding, it all adds together in the same place.

This is an unusual treatment. It would be more typical for the church to gross up your weekly check by about 7.5% and then make you responsible for the estimated payments.  Or, you can voluntarily particulate in federal income tax withholding each paycheck, via a form W-4 that goes into box 2. (If the church wants to do the paperwork of calculating the withholding and withholding state and federal tax and reporting it on form 941 etc.)

When I took over my church's accounting, we sent the SE tax via check to the pastor's personal IRS account using form 1040-ES (paying it for him directly into his account, instead of using form 941).  I don't recommend this, and I stopped it.  You and the church need to be clear on who is responsible for what in this situation.  The church should not withhold FICA or medicare tax at all -- if they want to withhold federal income tax they can, as long as they credit the money correctly of course, and it all goes toward your final bill one way or the other.
*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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