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clergy housing expenses

I'm stuck on qualifying expenses
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When I was receiving a housing allowance, the SE tax was calculated on the amount of my package that was designated housing allowance - regardless of the amount of the qualifying expenses.  IOW, regardless of whether  the expenses were more or less than the allowance, SE tax was still 15.6% of Housing Allowance.  If expenses < housing allowance, then the difference ("excess" housing allowance would appear in Line 7 for Fed Tax calculation.
If, by being "stuck" on qualified housing expenses, you mean you don't know what to include, it could include either rent or the mortgage payment, repairs, renovations, furnishings, utilities, property taxes, ins, etc. The IRS uses a term "appurtenances" for other expenses related to owning a home.  We have taken that to include a microwave, computer, mixer, Berkey water filter, etc.
It does not include groceries, clothing, pets, cleaning
Hope this helps.
  • So you can include your mortgage payment??  The IRS instructions above say "mortgage interest"????
  • Yes, the mortgage payment would be included.  The mortgage payment + mortgage interest + ad valorem property taxes  + property insurance is the equivalent of the cost of renting your property.  Utilities, renovation/repair costs, and the cost of furnishing are also considered a housing expenses   
    Mortgage interest (only) may also be deductible on Schedule A.
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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]
[W-2 Employees who did not have the housing allowance deducted from Box 1 - scroll  down to Bottom]


IRS INSTRUCTIONS:

If you are a minister and receive as part of your salary (for services as a minister) an amount officially designated as a rental allowance, you can exclude from gross income the lesser of the following amounts: 

  • the amount actually used to provide or rent a home;
  • the fair market rental value of the home (including furnishings, utilities, garage, etc.);
  • the amount officially designated (in advance of payment) as a rental or housing allowance; or
  • an amount which represents reasonable pay for your services.

The payments must be used in the year received.

The amount of the allowance that cannot be excluded should be entered with your wages on line 7 of Form 1040

If, instead of a housing allowance, your congregation furnishes housing in kind as pay for your services as a minister, you may exclude the value of the housing from income, but you must include the fair market rental value of the housing in net earnings from self-employment for self-employment tax purposes.
======================END OF IRS INSTRUCTIONS ============


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,
And
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 s 4029 or 4361
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.

 DONE!

W-2 Employees who did not have W-2 Box 1 Adjusted for Housing, proceed to procedure below for entering a Form 1040 Line 21 Adjustment to  Income

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.

[Form 1040 Line 21 Adjustment if needed for 1099-R Box 2b or W-2 Allowance not deducted from Box 1]
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
     "Miscellaneous Income""
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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    You got it!  While you do not "report" qualifying expenses, you do show the "net" of HA less qualifying expenses, ONLY when some HA is not used, on Line 7.  
    IRS does not care if your qualifying expenses are > than your HA: you will pay Fed Tax on the difference (via line 7) if they are LESS than HA.
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      Thank you for contacting Turbo Tax Answer XChange.  To exclude the parsonage from the taxable income, on the page ” Tell Us About Your Clergy Housing”  you must enter the Parsonage amount received, 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, and if the allowance is more than what you used, it gets added to Line 7 of the 1040 as Excess Allowance.  Otherwise, the parsonage will only be used to calculate self employment income tax.
      If you have any other questions or need clarifications, please add to this post!

       


      • SO for clarification - Housing Allowance box on Turbo Tax should include the amount that was approved and given to me for Housing.  The Qualifying expenses is the actual amount that was spent in the taxable year.  If they are the same - then this info is only used for calculating SE Tax?  if there is less expenses than Housing allowance - the difference is added to line 7.  If there is MORE expenses than allowance - it is treated as if it is the same amount in both boxes?
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