Clergy questions

[ppajjohn]

I receive a housing allowance from my employer, but I also receive wages (on a W-2).  On the W-2, there is federal income tax withheld, but no social security or medicare.  So how do I answer this question:

1. Pay self-employment tax on wages only

2. Social Security and Medicare taxes have been withheld

3. Pay self-employment tax on housing allowance only

4. Pay self-employment tax on wages and housing allowance 

[DeanM15]

Clergy are taxed differently on the W2 than regular W2 workers. You should choose option #4. 

The Church or Ministry does not pay Social Security or Medicare taxes for the Clergy and that information is missing from the W2. Self Employment tax is essentially Social Security and Medicare taxes. The rate is doubled as you are paying both your share and the employer share. 

The housing allowance is not taxed for Income Tax purposes, as long as certain guidelines are followed. The housing allowance is, however, taxed for Self Employment (SS and Medicare) tax purposes. Most employers put the housing allowance on line 14 of the W2. 

You can find out more information here. 

[landress1999]

We live in a parsonage rent free as a part of my husband's ministry position. The church also has set aside a housing allowance in our salary to cover utilities.  The housing allowance is listed on line 14 of our W2.  I know I need to somehow include the fair rental value of the parsonage, but this is not listed on line 14 of our W2.  How do I include the housing allowance AND fair rental value in turbotax?

[DMarkM1]

After entering the W2 you will get to a follow question about the W2.  Select the "Religion..." button.  That will take you to the interview to enter both the housing allowance and the qualifying expenses.  I suggest entering the "fair rental value" in the first box and the "housing allowance for utilities" in the 2nd box.

[jkrause]

Another use case, help is greatly appreciated.

Wife is member of clergy.  She was paid $30k for housing allowance, our qualifying expenses are $10k.  We live in our own home and pay mortgage.

Should Parsonage or Housing allowance be: 30k?  or 20k (30k-10k)?

Qualifying Expenses should be 10k, right?

[DMarkM1]

You should enter the housing allowance in the top box (Housing Allowance) and enter qualifying expenses in the 2nd box (Qualifying Expenses).  

[Opus 17]

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@landress1999 wrote:

We live in a parsonage rent free as a part of my husband's ministry position. The church also has set aside a housing allowance in our salary to cover utilities.  The housing allowance is listed on line 14 of our W2.  I know I need to somehow include the fair rental value of the parsonage, but this is not listed on line 14 of our W2.  How do I include the housing allowance AND fair rental value in turbotax?

---

I suggest entering the "fair rental value" in the first box and the "housing allowance for utilities" in the 2nd box.

@landress1999 @DMarkM1 This answer is incorrect.

If the clergy person receives both a rent-free parsonage and a separate cash allowance for utilities and other expenses, then the "housing allowance" provided by the church is the fair market value of the parsonage PLUS the cash amount, and the entire amount is subject to self-employment tax.

The fair market value of the parsonage is what it would cost to rent a similar house in the same neighborhood in similar condition.  Normally, the church is required to determine that and provide the information to the pastor.  A real estate agent might give an opinion, or you could check Craigslist and other sources.

For the first value, "housing or parsonage allowance", enter the total of the FMV of the parsonage plus the cash allowance.  For the second value, "qualified housing expenses," enter the total of the FMV of the parsonage plus the expenses for utilities and other qualified housing expenses (but the second value can't be larger than the first value, only less than or equal to.)

[Opus 17]

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@jkrause wrote:

Another use case, help is greatly appreciated.

Wife is member of clergy.  She was paid $30k for housing allowance, our qualifying expenses are $10k.  We live in our own home and pay mortgage.

Should Parsonage or Housing allowance be: 30k?  or 20k (30k-10k)?

Qualifying Expenses should be 10k, right?

---

Are your expenses really only $10,000?  Your housing expenses include:

• Fair rental value of the home (what it would cost to rent a similar home in the same neighborhood in similar condition 
• Utilities
• Property taxes
• Furnishings
• Food spent entertaining church members, hosting dinners and small groups, etc.

(Note that your mortgage payment is not a qualified expense, instead, you use the fair rental value.)

If your expenses really are less than the housing allowance, the excess housing allowance is added back to your taxable income. 

See this for more.  

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

[Debjoe]

BUT - if you do this, then the difference of Fair Rental Value PLUS designated housing allowance (which is subtracted from Box 1 income) minus what your actual expenses are.... will indeed be the correct amount for SECA, but will actually also raise the federal income amount and that shouldn't happen. 

[Debjoe]

I believe the way to include in the TOP BOX: 

1. Fair Market Value of Parsonage amount + 2. Designated Parsonage Allowance  which will be added to the Box 1 salary income to give a TOTAL on which to pay SECA.  

THEN

2. BOTTOM BOX QUALIFYING EXPENSES: it should be lower of the items mentioned: most likely actual expenses spent on parsonage and yard etc PLUS also the FMV amount .  This allows the FMV to be subtracted from paying federal income on that amount and to only add in the excess housing allowance back into federal. 

I arrived at this solution by working with clergy tax specialist and a turbotax person on the phone who had to go back several times to the higher ups to ascertain this would work out correctly. 

[Opus 17]

@Debjoe 

Be aware that you are responding to a discussion that is two years old, and contains comments from two different taxpayers with different situations, and that one of the expert answers is incorrect.  The correct answer when you have both a parsonage and a cash housing allowance is to report the value of your housing allowance as the total of the fair market value of the parsonage plus the cash housing allowance, and to report for expenses the fair market value of the parsonage plus your actual qualified housing expenses.  

[ClergyTaxQ]

I have a question in regards to this.

The W2 I received from my church lists only my housing exclusion in box 14. I'm seeing conflicting reports about whether to include FMV in this box. I've tried in both ways, and so far the taxes I owe are the same.

I am currently only putting a smaller housing exclusion (used for utilities and the like) in box 14. Then, in the later section that says "tell us about your clergy housing" I am including both the FMV of my parsonage and the housing exclusion amount from box 14. In the second box for qualifying expenses I have the same amount listed, because I used all of my housing exclusion properly. Then in the next page, I am selecting "Pay self-employment tax on my wages and housing allowance"

is this correct?

It looks like I am going to owe quite a bit. I did not make quarterly payments this year, which I assume is the reason why. (Last year I didn't end up owing because I only worked for the church part of the year). 

[Opus 17 · Accepted solution]

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@ClergyTaxQ wrote:

I have a question in regards to this.

The W2 I received from my church lists only my housing exclusion in box 14. I'm seeing conflicting reports about whether to include FMV in this box. I've tried in both ways, and so far the taxes I owe are the same.

I am currently only putting a smaller housing exclusion (used for utilities and the like) in box 14. Then, in the later section that says "tell us about your clergy housing" I am including both the FMV of my parsonage and the housing exclusion amount from box 14. In the second box for qualifying expenses I have the same amount listed, because I used all of my housing exclusion properly. Then in the next page, I am selecting "Pay self-employment tax on my wages and housing allowance"

is this correct?

It looks like I am going to owe quite a bit. I did not make quarterly payments this year, which I assume is the reason why. (Last year I didn't end up owing because I only worked for the church part of the year). 

---

Box 14 is used for informational purposes and entries there do not directly affect your taxes (except for certain specific codes in specific states).

In the housing allowance section, you should report as your housing allowance, the total of the FMV parsonage plus the cash housing allowance.  For your qualified expenses, you should report the same figure or smaller (if you did not use all the cash allowance on qualified expenses).  Include the FMV parsonage as one of the expenses even though you didn't actually pay it, this is how the form works.  

You need to pay SE tax on both housing and salary, unless your salary is subject to social security and medicare tax in box 4 and 6 of your W-2 (which means the church messed up), or if you have an approved religious exemption.

You will owe 15% self-employment tax on your housing allowance plus FMV of parsonage plus wages, and you owe income tax on your wages.  It is very possible that you will owe a large tax bill plus a penalty if you have not made estimated tax payments.  If Turbotax offers to include a penalty, you can decline.  Wait for the IRS to bill you, and then you can ask the IRS for a one-time waiver.

[ClergyTaxQ]

thanks, that makes sense. I will learn my lesson for next year!