@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.
