, MBA EATurboTax TaxPro
The clergy housing allowance is subject to self-employment tax but not necessarily income tax. The software will ask you if you received this form. You will be able to enter all the information in the related boxes, as it appears on your form.
If you would like to jump to the location to enter this form in the software, simply type '1099-MISC' in the search box in the upper right of the TurboTax software. The first option will be 'Jump to 1099-MISC,' which will take you directly to the 1099-Q section of TurboTax.
You can take a deduction for your housing expenses as allowed. In order to take the deduction, the software will ask you about these expenses when you are entering your related W-2 income. When you are entering your W-2 clergy income, follow the steps below:
- During the W-2 interview, at the screen "Do any of these apply to this W-2" select "I earned this income for religious employment" box
- The software will now provide you with the questions related to your situation
- On the "Tell Us About Your Housing Allowance" page, you must enter the Parsonage amount, and also the Qualifying Expenses.
The Qualifying Expenses are the lowest of these amounts:
- Your qualified housing expenses
- The fair rental value of your housing expenses, or
- Your housing or parsonage allowance
This will cancel out the amount used for housing, so if the allowance is more than what you used, it gets added to Line 7 of the 1040 as Excess Allowance.
If you would like to refer to a TurboTax resource, I've included a link below:
Let me know if you have additional questions. Thank you for choosing TurboTax!
, MBA EATurboTax TaxPro
Minister Pay on Form 1099-MISC Box 7
If the only form of payment you received was on a form 1099-MISC box 7, then it sounds like the full amount will be taxable. Unless the exemption applies below, in which case you do not report the income. Be sure to reply to the IRS timely if they request information about why you did not report the form.
There are rules that allow for a before tax parsonage allowance from income tax, but not self-employment income. This applies to W-2 income.
The only reason the amount may be excluded from social security and medicare tax is if you specifically filed form 4361. You would be aware if you filed this form or if you just became a minister recently, you may still be able to file this form. Let me know if you have questions related to these rules.
Exemption for the self-employment tax for certain ministers
If you are conscientiously opposed to public insurance because of individual religious considerations, or you are opposed because of the principles of the religious denomination you belong to, you can claim an exemption from the self-employment tax by filing Form 4361 with the IRS. If the exemption is granted, you do not pay Social Security or Medicare taxes on your earnings. Of course, neither do you get credit toward Social Security or Medicare benefits in retirement. You must file Form 4361 by the due date of your tax return for the second tax year in which you earned at least $400 of self-employment earnings as a minister.
Once you claim the exemption, you cannot revoke the election. Although the income you earn is not subject to self-employment tax if the election is granted, you can use the income as the basis for contributions to a qualified retirement plan, such as a Keogh plan or individual 401(k).
For reference, if you would like - I'll include a few links:https://turbotax.intuit.com/tax-tools/tax-tips/Self-Employment-Taxes/Ministers-and-Taxes/INF12069.html
, IAFF retired Firefighter/medicSuperUser
As an addition to what the TurboTax Employees provided:
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.
Click on one of the links below to learn more about how self-employment tax is calculated on clergy income, exemptions from self-employment tax, and how to enter a clergy housing allowance.
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 amount of Social Security and Medicare tax withholding you enter from your Form W-2 on the "Enter Your Wage Information" screen,
The selection you make on the Clergy Self-Employment Tax screen:
- Pay self-employment tax on wages only
- Social Security and Medicare taxes have been withheld
- Pay self-employment tax on housing allowance only
- Pay self-employment tax on wages and housing allowance
- This income is exempt from self-employment tax; I have an approval Form 4361
- Exemptions from self-employment tax for clergy income
Exemptions from Self-Employment Tax for Clergy Income
Form 4361: Application for Exemption From Self-Employment Tax for Use by Minister, Members of Religious Orders, and Christian Science Practitioners
You must file Form 4361 by the due date of your tax return for the second year that you have at least $400 of net earnings from self-employment. Part or all of the net earnings must be for clergy services. This includes Christian Science readers, practitioners, teachers, or lecturers. Employees of a church or church-controlled organization can claim the exemption if both the church and the employees file and receive the exemption. You can download IRS Form 4361 from their website.
Form 4029: Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits
If you are a member of a recognized religious sect, you can request an exemption from paying self-employment tax for religious reasons. Your religious sect must be opposed to accepting public or private insurance benefit payments for death, disability, old age, retirement, or medical care. If you claim this exemption, you waive all rights for you or your heirs to ever receive any social security benefits. If you have already received social security payments, you cannot apply for the exemption unless you pay back all the benefits you received. You must file Form 4029 with the Social Security Administration and receive approval before you claim exemption with the IRS. Refer to the IRS Form 4029 instructions on their website.
How to enter a clergy housing allowance - Form W-2 or Form 1099-MISC
In TurboTax, enter your W-2 clergy earnings under the Wages and Salaries area on the Your Income Summary screen.
During the W-2 interview, if you see an amount in box 14 for your Clergy Housing Allowance, enter it in the box 14 list.
Continues to the Let's Review Your Box 14 screen.
In the Box 14 drop down menu select Other-not on the above list.
Click Continue to the Do Any of These Apply to This W-2? screen, and select the option I earned this income for religious employment box.
On the next screen, About Your Religious Employment, select the option You earned this income for clergy employment.
On the next screen, Tell us about your Clergy Housing, be sure to enter amounts in both boxes.
The amount of your housing allowance that exceeds your Qualifying Expenses will be treated as income.
On the next screen, Clergy Self-Employment Tax, select the option that applies to you.
Click Continue to return to the W-2 summary screen.
How to enter a RETIRED clergy housing allowance - Form 1099-R
The IRS allows a housing allowance to retired ministers to the extent the recipient can justify the amount. Should you receive more than you can justify, the excess should be considered taxable.
You may include this statement with an electronically filed return using the instructions below.
You may file a paper return with an attachment stating that you received an exempted housing allowance as a retired clergy member. Be sure to include the amount received. You should keep documentation in your records to justify the amount of the housing allowance. This subject is covered in IRC Section 107, which you can mention in your statement.
You should have received form 1099-R reporting the distribution. To access the entry fields for the 1099-R:
From within TurboTax, scroll down the Income Summary List
In Category Retirement Plans and Social Security select IRA, 401(K), Pension Plan Distributions (Form 1099-R).
Add a 1099-R to create a new copy of the form or Click Edit to review a form already created.
The program will proceed with the interview questions for you to enter or review the appropriate information. Enter the data from the 1099-R excepting Box 2 information - see next.
If Box 2b is checked [Taxable Amount Not Determined] then right click the field for Box 2a and select "Add supporting details",
a. make sure the "NOT print box is not checked!
b. In first line of description enter "Taxable amount reported in Box 2a and in the Amount enter the Box 2 amount.
c. In the second line enter description "Deduction for Housing
Allowance" and in the Amount enter as a negative the allowanceas an adjustment
d. If the Housing Allowance exceeds the Pension received and a
negative sum results, then reduce the Housing Allowance so that the sum is zero.
If Box 2b is NOT checked, then you should report as taxable for the 1099-R the amount reported and adjust it as follows.
a. After exiting the 1099-R entry, return to the Income Summary list.
b. Scroll down the list to "Less Common Income" and select
c. Select "Other Reportable Income" - to the question
"Any Other Taxable Income" answer "yes"
d. Enter for Description = "Clergy Housing Allowance" and for
amount - as a negative the housing allowance amount.
This adjusting entry will appear as a negative amount on
Page 1 of Form 1040 line 21 with description showing.
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