Clergy questions

Question

I receive a housing allowance from my employer, but I also receive wages (on a W-2). On the W-2, there is federal income tax withheld, but no social security or medicare. So how do I answer this question:

1. Pay self-employment tax on wages only

2. Social Security and Medicare taxes have been withheld

3. Pay self-employment tax on housing allowance only

4. Pay self-employment tax on wages and housing allowance

Opus 17 · Accepted Answer

I have a question in regards to this.The W2 I received from my church lists only my housing exclusion in box 14. I'm seeing conflicting reports about whether to include FMV in this box. I've tried in both ways, and so far the taxes I owe are the same.I am currently only putting a smaller housing exclusion (used for utilities and the like) in box 14. Then, in the later section that says "tell us about your clergy housing" I am including both the FMV of my parsonage and the housing exclusion amount from box 14. In the second box for qualifying expenses I have the same amount listed, because I used all of my housing exclusion properly. Then in the next page, I am selecting "Pay self-employment tax on my wages and housing allowance"is this correct?It looks like I am going to owe quite a bit. I did not make quarterly payments this year, which I assume is the reason why. (Last year I didn't end up owing because I only worked for the church part of the year).   @ClergyTaxQ wrote:I have a question in regards to this.The W2 I received from my church lists only my housing exclusion in box 14. I'm seeing conflicting reports about whether to include FMV in this box. I've tried in both ways, and so far the taxes I owe are the same.I am currently only putting a smaller housing exclusion (used for utilities and the like) in box 14. Then, in the later section that says "tell us about your clergy housing" I am including both the FMV of my parsonage and the housing exclusion amount from box 14. In the second box for qualifying expenses I have the same amount listed, because I used all of my housing exclusion properly. Then in the next page, I am selecting "Pay self-employment tax on my wages and housing allowance"is this correct?It looks like I am going to owe quite a bit. I did not make quarterly payments this year, which I assume is the reason why. (Last year I didn't end up owing because I only worked for the church part of the year).   Box 14 is used for informational purposes and entries there do not directly affect your taxes (except for certain specific codes in specific states). In the housing allowance section, you should report as your housing allowance, the total of the FMV parsonage plus the cash housing allowance.  For your qualified expenses, you should report the same figure or smaller (if you did not use all the cash allowance on qualified expenses).  Include the FMV parsonage as one of the expenses even though you didn't actually pay it, this is how the form works.   You need to pay SE tax on both housing and salary, unless your salary is subject to social security and medicare tax in box 4 and 6 of your W-2 (which means the church messed up), or if you have an approved religious exemption. You will owe 15% self-employment tax on your housing allowance plus FMV of parsonage plus wages, and you owe income tax on your wages.  It is very possible that you will owe a large tax bill plus a penalty if you have not made estimated tax payments.  If Turbotax offers to include a penalty, you can decline.  Wait for the IRS to bill you, and then you can ask the IRS for a one-time waiver.

DeanM15 · Answer

Clergy are taxed differently on the W2 than regular W2 workers. You should choose option #4.  The Church or Ministry does not pay Social Security or Medicare taxes for the Clergy and that information is missing from the W2. Self Employment tax is essentially Social Security and Medicare taxes. The rate is doubled as you are paying both your share and the employer share.  The housing allowance is not taxed for Income Tax purposes, as long as certain guidelines are followed. The housing allowance is, however, taxed for Self Employment (SS and Medicare) tax purposes. Most employers put the housing allowance on line 14 of the W2.  You can find out more information here.