PRESENTED BY S_C - NOT AN INTUIT EMPLOYEE NOR AN APOLOGIST FOR TURBOTAX
2018 Tax Year - 2019 Update
Here follow the processes according to the Internal Revenue Code for Clergy as to different situations.
LINE BY LINE INSTRUCTIONS FOR ENTERING CLERGY HOUSING - SCROLL TO BOTTOM
[Retired Clergy may be entitled to the same Housing Exemption - Scroll to the Bottom]
Clergy face a difficult accounting in calculating taxes.
Do you have income reported on W-2 or From 1099-MISC?
It is an option of the church as to how you are considered as an employee or self-employed.
Clergy housing, also known as Parsonage, is not subject to Federal Income Tax but is subject to the FICA Social Security Tax and to Medicare Tax [this is the equivalent of Self-Employment tax]
Your parsonage [being either that designated by your church, or agreed to, or a reasonable statement of housing cost in the area of the church] is not subject to Income Tax and but are subject to FICA and Medicare Tax.
"housing allowances" = parsonage.
Housing expenses - Other costs for housing over and above the "allowance"? If a reasonable statement of what it housing costs are in your church's area, you may find the following of interest as it would suggest the reasonable cost is deductible even if the "allowance" did not cover it.
"A minister who receives a housing allowance may exclude the allowance from gross income to the extent it is used to pay expenses in providing a home. Generally, those expenses include rent, mortgage interest, utilities, repairs, and other expenses directly relating to providing a home. The amount excluded cannot be more than the reasonable compensation for the minister's services."
"For social security and Medicare tax purposes, a duly ordained, licensed or commissioned minister performing ministerial services is considered to be self-employed. This means that your salary on Form W-2, the net profit on Schedule C or C-EZ, and your housing allowance, less your employee business expenses are subject to self-employment tax on Form 1040, Schedule SE"
Alternatively if you received a Form 1099-MISC Box 7 and not a W-2, Enter the 1099-MISC as business income. For the principal business code, use 813000 (religious organization). After you enter that business code you will get a screen about clergy income. Select "I Need to Pay Self-Employment Tax on This Income." The next screen will ask you to enter the amount of your housing allowance. Continue through the business interview and enter your 1099-MISC.
If you report clergy income and your employer does not pay Social Security and Medicare tax, you must:
- pay these taxes yourself in the form of self-employment tax or
- be granted an exemption on Form 4361 or Form 4029.
Your housing allowance is not subject to regular income tax (to the extent that you use it for qualified housing expenses), but it is subject to Social Security and Medicare (self-employment) taxes.
LIMITATION: For those clergy who have Employee Business Expense to report, Turbotax does have the ability to include a housing allowance or FMV parsonage in SE tax, but lacks is the ability to calculate the correct adjustments for work-related expenses to schedule SE and form 2106.
How to enter a clergy housing allowance - Form 1099-MISC
Form 1099-MISC Box 7:
After entering the Form 1099-MISC data in to the Interview, you will need to make an adjustment to reduce the Income Taxable Amount by your Housing Allowance.
- From YOUR INCOME SUMMARY page
- Scroll down the list to "Less Common Income" and select "Miscellaneous Income"
- Select "Other Reportable Income"
- To the question "Any Other Taxable Income" answer "yes"
- Enter for Description = "Clergy Housing Allowance" and for amount - as a negative amount the housing allowance amount.
- This adjusting entry will appear as a negative amount on Page 1 of Form 1040 line 21 with description showing.
How self-employment tax is calculated on clergy income
TurboTax calculates clergy self-employment tax and prepares Schedule SE (Self-Employment Tax) based upon:
- The selection you make on the Clergy Self-Employment Tax screen:
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Enter Form 1099-MISC clergy income (and housing allowance) as a self-employed business on Schedule C. If you report clergy income and your employer does not pay Social Security and Medicare tax, you must pay these taxes yourself in the form of self-employment tax or have an exception.
In TurboTax Home & Business edition, select your clergy business or enter a business profile for your ministerial services. Continue to or click Enter next to the Business Code line.
- On the Business Code screen, verify your code (813000, religious organization is a common code), then click Continue.
- On the Clergy and Recognized Religious Sects screen, check the I Need to Pay Self-Employment Tax on This Income button, and click Continue.
NOTE: If you've filed Form 4361 or 4029 and it was approved, check the appropriate line.
- On the Clergy/Members of Recognized Religious Sects screen, enter the amount of your housing allowance or parsonage allowance, then click Continue.
Continue through the business interview to the Business Income category.
- Click Start/Update next to Business Income line.
- On the Business Income screen, click Start/Update next to the 1099-MISC topic.
- Follow the prompts to enter your Form 1099-MISC for clergy earnings.
Be sure to also enter any business expenses associated with your ministerial services.
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I am a medical resident that receives a housing stipend on a 1099 Misc. I am under the impression that under income tax laws that housing stipends are not taxable. How will this work in turbo tax software? It allows me to enter the 1099 as reported income but does not allow me to offset the income anywhere? Can you provide instructions on how to net this out of my tax return under income? thanks
Reporting this in TurboTax will be a two-step process, first to include the 1099-MISC as income and then to make a negative adjustment to remove it.
To include the 1099-MISC as a part of your tax return, follow these steps:
- On the top row of the TurboTax online screen, click on Search (or for CD/downloaded TurboTax locate the search box in the upper right corner)
- This opens a box where you can type in “1099-MISC” (be sure to enter exactly as shown here) and click the magnifying glass (or for CD/downloaded TurboTax, click Find)
- The search results will give you an option to “Jump to 1099-MISC"
- Click on the blue “Jump to 1099-MISC” link
- Answer Yes you did receive a 1099-MISC
- Fill in the details from your 1099-MISC then click Continue
- Provide a short description for the reason you received the 1099-MISC then click Continue
- On the next screen titled, “Does one of these uncommon situations apply?” choose the last option, None of these apply and then click Continue
- On the next screen asking if the 1099 involved work like your main job, answer No and click Continue
- On the next screen, check the box that you received the income in 2021 and then click Continue
- Finally, choose “No, it didn’t involve an intent to earn money” and click Continue
- Answer the questions on the next couple of screens to finish the process
Now the income shown on the Form 1099-MISC has been added to your return. Next, it will be “removed” from the return.
Follow these steps:
- Go to Federal Taxes > Wages & Income and scroll to the bottom of the screen to the Less Common Income section (expand the section by clicking Show More if necessary)
- Click Start or Update beside Miscellaneous Income, 1099-A, 1099-C
- Scroll to the bottom of the list and click Start or Update beside Other Reportable income
- Answer Yes to move forward
- Enter a brief description, such as “housing allowance adjustment,” and the amount reported on the 1099-MISC as a negative number then click Continue
- Click Done
When you see your Form 1040 Schedule 1, the amount shown on the Form 1099-MISC will be reported twice on line 8 – once as a positive amount and once as a negative amount.
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