Clergy

[tpnl]

I have a minister client. He has cancer. The church took an offering for his medical bills. The offering was deposited into the church account and paid to the minister by a check of the church.

I am reading Pub 517 pg 8. Under offering and fees it states, " you must include in your income offerings . . . " The amount the church gave him was not included on his W-2. I say this offering given to him is taxable for income and SE.

Any thoughts?

[erchess]

I think

that the optimal solution from his point of view would be for the church to issue a corrected W-2 but of course they would also have to issue an amended payroll report to the IRS and submit additional payroll tax. As service to your client you might offer to facilitate this by assuring whoever needs it that correcting an error is the way to avoid IRS trouble and hoping no one will notice is not the way to avoid IRS trouble. You might even offer for a reasonable fee to do the payroll correction and provide any needed audit assistance or if you are enrolled, representation.

Failing all that your Minister client can avoid any and all problems for himself with the IRS by as you said putting the money on Schedule C where it will be subject to income and SE taxes.

Don't forget to look into whether he has any applicable expenses but make sure not to take any EMPLOYEE expenses on Sch C. Some examples - his mileage going from the Church to work related meetings anywhere but at his home would be an employee expense. But if he is reporting on C monies given to him for such things as weddings and funerals, then a book about weddings or funerals or special clerical clothing not appropriate for street wear (not in other words ordinary dress clothes) if only used at weddings and or funerals, would be Sch C deductions.

Oh and since he has cancer don't forget to look into all his un-reimbursed medical expenses and the possibility that he can itemize and claim medical expenses even if he has not been able to in the past. He's paying tax on the extra money from the church so he can deduct otherwise appropriate medical expenses paid with the extra money. It is not unheard of for someone with cancer to have medical expenses sufficient by themselves to make itemizing profitable even in the absence of a Mortgage.

[MAMalody]

As you describe it, I don't see any other way to handle it other than income to the pastor and being subject to SE tax (assuming he has not opted out).

The only way that I see that this may not be the case, and that is iffy, would be if these contributions were made to the church benevolence fund and the church could choose to do with those contributions as they saw fit. This would still be iffy, but it does not seem to fit your fact pattern.

Mike

[MRTAX4EA]

Minister's W-2

The minister's W-2 is not subject to FICA withholding. Clergy pay their Social Security tax on Schedule SE.

Too bad the church had not set up any medical reimbursment plan.

I believe that the Schedule C route is correct.

[erchess]

sheesh

MrTax is of course correct so there is no point in bugging the poor church to correct the W-2. I persist in my belief that the money in question belonged there but since there is no difference in what the Church pays or in what the Minister pays, this would seem to be an error that no one really cares about.

[MAMalody]

While I agree that the Schedule C would work, the W-2 is the correct route to go. There could a $50 penalty assessed for failure to prepare a correct W-2 - although I must admit, I have seldom seen it assesssed on a situation like this.

While echress' comments are correct, generally speaking, on the handling of Schedule C expenses for a pastor, I don't see how they apply in this case since the funds were not paid for any specifically discernable ministry therefore it would be difficult, if not impossible to assign any expenses to them.