Where to record retired clergy housing allowance self employment exclusion?

[FTERoo]

Per https://www.ssa.gov/OP_Home/cfr20/404/404-1091.htm#:~:text=You%20must%20exclude%20any%20parsonage,ne....
 404.1091. Figuring net earnings for ministers and members of religious orders.
"  (c) Housing allowance when included in retirement pay. You must exclude any parsonage or housing allowance included in your retirement pay or any other retirement benefit received after retirement pursuant to a church plan as defined in section 414(e) of the Internal Revenue Code when computing your net earnings from self-employment. "
Where/how is this input? The Pension amount received is designated as housing allowance. It is therefore, by definition, NOT subject to SE tax.

[Anonymous_]

Post 1099R. have a retired clergy housing allowance exclusion amount. where do i post exclusion amou...

[FTERoo]

RE: https://ttlc.intuit.com/turbotax-support/en-us/help-article/tax-credits-deductions/parsonage-housing...

This is the "Standard method" for Housing Allowance. I am familiar with this. This guidance does not answer the question, because:

1. The Pension Amount is DESGNATED as housing allowance. This is an allowable election when choosing to begin receiving the pension.
2. The clergy HAS income, both 1099 and W2.
   1. The 1099 income has a net loss of ~$500
   2. The W2 Income has Social Security Taxes Deducted
3. Turbotax sees the Housing allowance as additional income, subject to SE tax, and calculates an amount due.

Per the resources cited, and quoted in my original post, this Pension designated housing allowance IS NOT subject to Self-employment Taxes.

Where is the adjustment made in Turbotax? I can OVERRIDE a field but would prefer not to do that if a more standard method is available. 

I'm currently investigating the SE adjustments form.....

[FTERoo]

I did the "OTHER REPORTABLE INCOME" negative amount, but weirdly, this generates a negative amount on line 8 of the 1040.

• The ORIGINAL amount of the 1099-R is included in 1040 5a
• But because it is designated as non-taxable, it doesn't transfer to 5b

If schedule C's Housing Allowance amount is left BLANK, then the amount doesn't translate into the program as a SE eligible.

• This may be the best answer/method at this point.
• The Designated Housing Allowance arises from the Pension, NOT from the Schedule C income activities.

The INPUT A NEGATIVE, doesn't seem right, as it generates a large negative. More credits would be nice, but not unallowable ones.

Willing to consider alternatives.

[Opus 17]

I don't understand your situation, I think you are likely doing something wrong.

You have a 1099 self-employment business, AND a W-2 non-clergy job, AND a religious pension designated as a non-taxable housing allowance?  If you have income on a schedule C, that is always subject to self-employment tax, even if it is compensation for clergy duties.  Likewise, if you have a W-2 from a clergy job, that is also likewise always subject to SE tax.  Did you get a 1099-R from the pension plan?  What value is in box 1 and box 2a?  Is box 2b "taxable amount not determined" checked or not?

Retirement income on a 1099-R is never subject to self-employment tax, not because of any clergy rule, but because retirement income is not compensation for work performed.  If you were at a secular job with a 401k, your contributions are pre-tax (excluded from income tax) but are always subject to social security and medicare tax.  Therefore, when you withdraw the 401k, you don't pay SE tax again, but you do pay income tax.  If you have a clergy pension, you did (or should have) paid SE tax on the pension contributions at the time they were made, even though the pension contributions were deducted from your income subject to income tax.  Therefore, when you receive the pension, it is always exempt from SE tax, and it is subject to income tax (like a 401k) unless it is designated as a housing allowance. 

Unless Turbotax has been programmed differently for 2023, the instructions in the linked post will not subject the pension to SE tax if you carry them out correctly.

In the case of a pension designated as a housing allowance, you might or might not get a 1099-R from the pension plan.  If you got a 1099-R, tell us about box 1, box 2a and box 2b.  If you are planning for 2023, and don't have the 1099-R yet, make sure you are entering your expected data correctly.  A 1099-R goes in a completely different part of the interview than a 1099-MISC or 1099-NEC.  Are you entering your pension as if it was part of your self-employment income?

[Opus 17]

• The ORIGINAL amount of the 1099-R is included in 1040 5a
• But because it is designated as non-taxable, it doesn't transfer to 5b

If the pension is designated as non-taxable on the 1099-R (box 1 is the gross amount and box 2 is zero), then line 5a on form 1040 should be the gross amount and line 5b is zero.  Stop there.  You don't make any further adjustments anywhere.  (The linked instructions did not cover this situation, where the pension payer has correctly reported everything on the 1099R and no further adjustments are needed.)

If schedule C's Housing Allowance amount is left BLANK, then the amount doesn't translate into the program as a SE eligible.

I don't understand what you are doing here.   Your pension should not be entered as a housing allowance on schedule C or schedule SE because it is not compensation for work you are performing.   If you have an independent sig gig as a clergy person that you report on schedule C, and that position also has a designated housing allowance, it must be included as income subject to self-employment tax even if you are retired from your main position.  It will be on line 2 of schedule SE, and that flows from lines 5a, b and c of a turbotax internal worksheet called "Schedule SE Adjustment Worksheet".  But there is no way for your 1099-R pension income to "leak" onto schedule C or schedule SE unless you do something wrong. 

[FTERoo]

OK.

Clarify please:

1. 1099-R, BOX 1 Goss Distribution amount is ALL designated as Housing Allowance.
2. BOX 2a Taxable amount is 0.00

I get that is why no taxable amount is passed to 5b on the 1040.

In the instructions on Pub 517, a taxable/non taxable income calculation percentage is derived. The Pension amount is INCLUDED in this % calculation in every example I can find.

This is a good example, starting on p106: https://www.cpg.org/globalassets/documents/publications/tax-2023-clergy-tax-return-preparation-guide...

First issue: Yes, there is additional ministerial income for a schedule C. 

Second issue: No additional Housing allowance has been designated outside of this Pension Amount.

When you state "Stop there.  You don't make any further adjustments anywhere." :

• Do you agree or disagree with including the Pension Designated Housing Allowance in the % method on the above referenced example?
  • Calculating the % reduces (adjusts) the allowable deductions on Schedule C.  50% in my case.
• Turbotax Schedule C also has a box for the housing allowance, which is what triggers SE Income.
  • The Pension element is not addressed there, just "Plug in your Housing Allowance".
    • This is where I have removed that value under the "It's non-taxable by definition" assumption.

Admittedly, this is a rare, but not totally unique situation that the instructions (Turbotax OR the IRS) don't cover well.

[Opus 17]

I think you need to understand the difference between wages designated as housing allowance and pension designated as housing allowance. A pension is never subject to self-employment tax or social security tax, even if you are a retired minister, because a pension is not compensation for services performed.

I’m not going to read the entire 120 page PDF, I have read  similar ones and I have been working in this area for several years. If you want to point to a specific page that is the source of your confusion, I will review it, and see if I can explain further.

Because your 1099-R  correctly reports your pension as non-taxable in box 1 and 2a, you simply enter the 1099R on your tax return, and make no further adjustments.  Report any other income in the usual way, either schedule C or on a W-2.  If you are referring to the Deason rule, which requires a calculation to be performed to determine the percentage of business expenses that you can deduct based on your taxable income and housing allowance, this does not apply to your current situation either, because, as I said, even though the pension is designated as a housing allowance, it is not part of your compensation for services performed. 

[Opus 17]

I reviewed your PDF, starting on page 106 as you indicated. In this example, the authors of the publication disagree with me that a Deason rule allocation should be made for your allowable expenses on schedule C. In this case, you must make the allocation manually. (TurboTax has never included this calculation. Even if it has been newly included for 2023, you should still make the calculation manually because the pension as housing allowance is not the same as a wage designated as housing allowance.   Although a Deason rule allocation may need to be made,  the pension is still never subject to SE tax.)

For example, if you determine that you have $100 of business expenses that are 25% allocable to salary, and 75% allocable to housing allowance, then you would just enter $25 as the expense on schedule C.  The regulations state that you should also attach a written statement explaining your calculation, which means you can’t e-file, because TurboTax does not allow attachments. You could e-file without attaching the explanation and keep the explanation with your records in case of audit, or you could use try using a different software that allows attachments. 

[FTERoo]

Thank you again for your reply, which I have marked as "Best Answer"!

I  especially appreciated your clarification language in the last sentence: " ...even though the pension is designated as a housing allowance, it is not part of your compensation for services performed."

My spouse is the pastor, I had a 40yr finance career and I have done my own taxes since I was a teenager, maybe 30+ years total with Turbotax. The Clergy tax return, and Deason Rule in particular, have generated new questions every year for 20 years.

The key question this year is: Should the Pension Housing allowance to be COMBINED with any income from Post Retirement Clergy activities?

I do like the position that the previous Pension related employment and current Clergy activities stand alone. That makes logical sense to me.

I AM going to run this by my local Clergy Tax specialist who I haven't been able to speak with yet. I would appreciate any additional clarification from your resources at Intuit.

The planning is to maximize pre-12/31/23 Traditional IRA to Roth IRA shifts that will utilize 100% of a $7,500 EV Tax Credit available to us this year, and at the same time minimize any remaining tax liability.

Thanks again for your help.

[Opus 17]

My understanding of the Deason rule is that one is required to modify one's deductible work expenses to account for the fact that some of the compensation for work performed is not subject to income tax.  That is, if you have a $100 expense but only 50% of your income is taxable, only 50% of the expense is deductible against taxable income.  I don't see the rationale for requiring the work expenses to be modified based on a non-taxable pension.  

(Although not a great example, there are states where retirement income is not taxable, or is partially taxable.  I am not aware that if you have a schedule C side gig while collecting a non-taxable pension, you must adjust your work expenses.)

However, since it is called the "Deason" rule, there is probably a court case somewhere involving a person named Deason, and the decision in that case sets the rules going forward.  Someone would have to analyze the decision, and try and determine if the IRS, and various experts who write books, are correctly applying the decision.  I'm not going to be doing that, and even if I did, I'm not your hired expert who will stand behind you at audit or whatever.  Good luck. 

[FTERoo]

Thaaks again. I do not in any way minimize this exchange or expect guarantees.  Your analysis has been very helpful. I was asking for guidance in navigating the rules and Turbotax's interface.

I agree with the rationale of not tying current activities to a non-taxable pension: Consistent, logical and backed by your experience.