Which version of TurboTax is best for reporting clergy income and housing from a W-2? Would I need to choose the Self-Employed edition due to self-employment tax?

[Opus 17 · Accepted solution]

 Although clergy are considered self-employed for certain limited tax purposes, they are generally common law employees and will receive a W-2. You can use the deluxe version of TurboTax as long as you don't have additional side income. 

Your W-2 should have wages in box 1 and boxes 2 through 6 should be blank. If not, TurboTax will not understand how to process your return and you may need professional help. After entering the W-2, there is a page of special circumstances and you check the box for religious wages. You will then  be asked about your housing allowance. 

If you also have a side income that is not recorded on the W-2, then you may need the self-employed version in order to prepare a schedule C to include that side income.    But if you just have a W-2, Deluxe will be fine. 

 One additional note: if you want to deduct work related expenses, you have to make adjustments due to the Deason rule. These adjustments can't be made using the online version of TurboTax, you need to use the desktop version so that you can directly edit and make manual corrections on some of the forms. 

[tomis850]

That is very helpful... Would there be any way to report other allowances such as automobile using the online version of TurboTax?

[Opus 17]

Allowances?  You mean deductions for business use of a personal vehicle?

If you are a common law employee with a W-2, you can deduct unreimbursed business expenses using form 2106. This is an itemized deduction subject to the 2% rule, so many taxpayers won't have anything to deduct anyway.

Then you have two other issues.

1. With a housing allowance, you have to reduce your deduction according to the Deason rule.  Suppose your compensation is $12,000 housing allowance and $25,000 wages.  Since only 25/37= 67% of your compensation is taxable income, you can only deduct 67% of your work-related expenses.  Turbotax does not support this calculation.  You can do it without making manual adjustments if you report only 67% of your miles, 67% of your books and other expenses, etc.  Or whatever percent applies to your facts and figures.   But you are also supposed to attach a written statement showing the calculations, which means you can't e-file.  (If you report a reduced deduction without the attached statement, your e-file will go through, but you may eventually be audited and asked to reduce your expenses or prove you already did.)

2. In addition to deducting the adjusted work expenses from your taxable income on form 2106, you can also deduct your adjusted work expenses from your income subject to self-employment tax.  But this can only be done in the desktop program, by manually entering your expenses on the schedule C Adjustments Worksheet, part 2 line 5c.


This may be helpful. <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...>

[Pk7]

I'm inquiring as to which TurboTax version is best for a minister with a housing allowance?  In addition, I worked some other part-time W-2 jobs during the year.  Thank you!

[Pk7]

Hello, I appreciate your answer oh, but I am wondering which version is best to use for a minister with a housing allowance and also if you have worked additional W2 part-time positions. Thank you

[Homeowner18976]

Hi Opus 17, my wife is the minister and during 2019 she transitioned from one church to another. The approach on the W-2 between the 2 churches are vary different. Church 1 had entries in boxes 2-6, so I understand from your explanation that this is a problem. Would the problem be mitigaged somewhat if I am a regular employee (non-clergy) so that the Medicare/SS contributions would essentially to "credited" towards my obligations? I am showing a refund because essentially we overpaid our Med/SS as a family. At her new church 2, there is no Medicare/SS withheld.... HOWEVER, did did pay extra income tax on her non-housing pay (this was my doing, as I did not want to owe taxes). 

Because of this, I'm now sure how I should answer the question about HOUSING. for almost 2 decades I've been answering with self-employed only with regards to the HOUSING.... but now I'm beginning to question my approach to taxes... 

can someone help me? I don't want to trigger an audit flag, but I do want to doing my taxes correctly and take advantage of any benefits owing to my wife's unique tax situation.

[LeonardS]

"…Generally, you're an employee if the church or organization you perform services for has the legal right to control both what you do and how you do it, even if you have considerable discretion and freedom of action. …. If a congregation employs you for a salary, you're generally a common-law employee of the congregation and your salary is considered wages for income tax withholding purposes. However, amounts you receive directly from members of the congregation, such as fees for performing marriages, baptisms, or other personal services, are generally earnings from self-employment for income tax purposes. Both the salary you receive from the congregation and fees you receive from members of the congregation may be included for social security coverage purposes and subject to self-employment tax (see below).

If you're an independent contractor, the offerings or fees you receive for performing marriages, baptisms, funerals, etc. are self-employment income. Use Schedule C to report these earnings and related expenses." Ref IRS Topic No. 417

This link Topic No. 417 Earnings for Clergy has information you may find helpful.

[Homeowner18976]

Hi LeonardS - thanks for weighing in on my dilemma;

My question for the community is if boxes 2-6 are filled out is this an indication that the W-2 has been incorrectly completed? My understanding is that a clergy person is NOT subject to withholding, that the proper way is for the minister to submit quarterly SECA payments, NOT FICA ....

anyone out there who can speak to this issue?

[LeonardS]

The following information may be of help in resolving your question as to your W-2 was incorrectly completed.

"Ministers for tax purposes must pay SECA taxes on their ministerial earnings unless they have properly followed IRS rules to opt out of Social Security, something few ministers qualify to do. If ministers have opted out of Social Security for their ministerial income, they must pay Social Security taxes on any income earned from secular employment.

Most ministers are employees for federal income tax purposes. But they are always considered self-employed for Social Security purposes. Unlike other taxpayers who are employees for federal income tax purposes, ministers must pay SECA taxes on their ministerial income.

No. A church cannot pay FICA for someone who is a minister for tax purposes. By law, ministers are always treated as self-employed for Social Security purposes and therefore are subject to SECA taxes on their ministerial earnings. Churches that pay FICA for their ministers are not doing them a favor — they are violating the law. When churches mistakenly pay FICA for ministers, they can cause errors in Social Security Administration records that may affect future benefits."

Ref: What should Ministers and Churches know about Social Security?

[KevinSeager]

Hi, I'm just checking to make sure my clergy housing allowance isn't being double counted.  In filling out box 14 of W2, it doesn't recognize "Clergy Housing Allowance" and reverts it to "Other."  Shortly afterwards I am asked to enter my parsonage or housing allowance.  Just want to make sure it recognizes it as the same as what was input for line 14 and isn't double counted. I'm using Turbotax Deluxe.  Thanks.