Retired Priest

[farm girl]

A retired priest has Social Security, a 1099-R and a stipend he received for each Mass he said.

The 1099-R shows a gross amount of 10,000 and a taxable amount of 5,000 (made-up figures). He has a statement from the Diocese showing his retirement income of 5,000 and a housing allowance of 5,000.

He is receiving retirement and working - is his housing allowance subject to income tax or SE tax because he's still saying Mass even though he's getting retirement income?

The prior preparer put the stipend on Sch C. Do I need to ask if he's taken a vow of poverty? If so, would this stipend (about 3,000) be Line 21 Other Income?

This is the first clergy return for me and I'm wondering if I'm thinking this through correctly. I would appreciate any...and all... help.

[RLymanC]

retired priest

A retired minister receiving an otherwise taxable distribution from a qualified Sec. 401(a), 401(k), 403(b), 408(k), 408(p) 414(e) plan may have a parsonage allowance designated by the former employer up to 100% tax free to the extent spent for housing.

Distributions from a retirement plan may not be eligible to be designated as non-taxable housing allowance if the distributions are not identifiable as being based on earnings from the ministry.

If the stipend is for services preformed or from the church I'd put it on Sch C and check the box on Form SE indicating no SE tax if form 4361 has been filed by the minister.

[Koss]

Mass Stipends

Okay, I'm gonna take a crack at this...

But there's probably more than one right answer.

Because you used the terms priest and mass, I'm going to assume that your guy is either

(a) Roman Catholic;
(b) eastern Orthodox, or
(c) Episcopalian.

So I'll take the easy part first. Diocesan priests in these churches generally do not take a vow of poverty. Religious order priests, such as Jesuits, Benedictines, and Franciscans, may or may not have a vow of poverty.

The difference between religious order priests and diocesan priests, if you're curious, is... who they report to, and what kind of assignment they get. Diocesan priests report to a bishop, and typically get assigned to a parish, where they do things like say mass on Sundays and perform marriages and baptisms. (Most priests will tell you there's a little bit more to it than that, but you get the idea.)

Religious order priests report to a superior, who holds a leadership position in the order. A parish has geographic boundaries; a religious order usually doesn't. Religious order priests do things like helping poor people in Africa, helping poor people in Los Angeles County, and other "missions," like serving as chaplains in hospitals, prisons, and the armed forces.

So if your guy is a diocesan priest, he doesn't have a vow of poverty. Unless he's some sort of crazy exception, like a Franciscan who decided he didn't want to be a Franciscan anymore, and got released by the order from his service obligation, got an assignment as a parish priest, but never got released from the vow of poverty... But you'll probably do 500 clergy returns before you see something like that.

See, it's a bit like how the Jedi Knights report directly to Yoda, instead of going through the regular chain of command in the Rebel Army... Okay, let's not go there.

I said that was the easy part. LOL

The treatment of the mass stipends is highly debated. For many active parish priests, it apparently constitutes a significant portion of their income. It is paid to them directly by parishioners, and for many active parish priests, it properly belongs on Schedule C as self-employment income.

But for a guy who is retired, where the amount is not a significant portion of his income, you could make an argument that he is no longer engaged in the trade or business of... well... the trade or business of what?

This is a really kind of a hoot. From a theological standpoint, it's the same work he was doing before he retired. You can't be a part-time priest, and consecrating the Body and Blood can never be a side job. It certainly isn't a hobby.

Full disclosure: I'm Roman Catholic, and I spend enough time hanging out with clergy that I can make these kinds of wisecracks without getting burned at the stake.

You'll need to ask some questions about your client's living arrangements. You said the prior tax pro put the stipends on Schedule C. But did your client just recently retire?

Active diocesan priests get a housing allowance because, in most cases, they get to live in a rectory that is owned by the parish church or by the diocese. Retired priests generally don't get a housing allowance from the diocese, and they don't automatically get to live in a rectory, either.

I'm not kidding. Retired priests in the Roman Catholic Church are largely on their own. They either have to rent an apartment somewhere, or live with family, or work out an arrangement where they can live in an available bedroom at a rectory that is controlled by the diocese and occupied and managed by an active parish priest. And that kind of arrangement is usually a private, informal agreement between the retired priest and the active parish priest, and it may or may not involve payment of a small amount of rent to the parish church.

As you can imagine, some retired priests might be kinda nice to have around, to say mass when the parish priest is on vacation and otherwise help out, but others might be insufferable and impossible to live with. Priests are very, very human, especially when they are retired.

So your client may not really have a housing allowance.

Good luck on this one, and feel free to post again with any further questions after you get some more info...

Probably more than you ever wanted to know about life in the Roman Catholic Church.

BMK

[JohnH]

Actually, this Southern Baptist (who has several clergy as clients) found it fascinating and enlightening. Thanks for the information, because one never knows when it might come in handy in helping someone get their tax return prepared correctly.

[farm girl]

I'll look in to things ...

Thanks, Koss and RLymanC, for the information. I'll ask more questions....

He is a Roman Catholic priest - Diocesan since the retirement/housing allowance letter came on letterhead from the Diocese. If I go by Table 1 in Pub 517, the Social Security he receives would be due to past SE income. Correct?

>>>You'll need to ask some questions about your client's living arrangements. You said the prior tax pro put the stipends on Schedule C. But did your client just recently retire?<<<

He's 85 and the retirement income was on last year's return. As for the stipend, he told me he received $10 every time he said Mass. In this area, most of the priests have more than one parish where they say Mass. When I asked about mileage to another church he said the deacon usually drove but he travels to the hospital and the nursing homes. I don't think there's more than one other priest for the parish(es).

>>>Full disclosure: I'm Roman Catholic, and I spend enough time hanging out with clergy that I can make these kinds of wisecracks without being burned at the stake.<<<

When I told him I would have to do more research I told him I would find answers from a "higher power" and he gave me a laugh. Now, I'm wondering if he's having second thoughts about me doing his return!

[Koss]

Form 4361

FYI: Most Roman Catholic priests do not opt out of social security.

First, as I explained in my long-winded post, diocesan priests do not take a vow of poverty. Catholic theology is not inherently opposed to a government-funded retirement program. There is no necessary moral or religious objection to social security.

Second, the retirement programs operated by the dioceses are often not enough. Simply put, many retired priests need social security.

BMK

[Burke]

Just for general information, the Episcopal church does not allow their priests to opt-out of Social Security. Same reasoning as above. No objection to a socialized retirement system. So all is subject to SE.

[Koss]

Religious Orders

What's interesting is that in many of the Roman Catholic and Anglican religious orders, the retired clergy or religious are not "largely on their own," as is the case with many diocesan priests.

Some religious orders do have a vow of poverty; others have no formal vow, but rather a way of life or a binding community charter that actually eliminates all personal ownership of any assets. The order or the organization itself may be quite secure financially, or it may not be. But either way, in some orders, these guys literally don't even own their own clothing.

You don't give up all your assets until you have completed a probationary period of membership in the order. Some guys leave before reaching that point, either because they want out, or because the community decides that they don't really belong there. The probationary period ranges from as little as three years in some orders to as long as twelve in others.

But once you take that final step, you're in for life, and you can't be thrown out without real cause, and some really serious due process within the order. It is not a coincidence that it's a little bit like becoming a tenured professor. The structure of our universities was modelled on that of medieval monasteries.

What it means is that you don't leave the order when you retire. You're a charter member, and you won't get farmed out to a nursing home just because you get a little cranky, or because you need help getting dressed. At least in theory, to the extent that they can, the religious community takes care of its own, and you live out your life and die at home, on the old-fashioned, nineteenth-century family model. Your brothers don't fight about who's going to take care of you.

So by giving up the material world, monks and nuns trust in the community to provide for their retirement...

Diocesan priests, on the other hand, like most protestant ministers, are free to accumulate wealth, but are pretty much responsible for planning and managing their own retirement, like any other working stiff.

Interesting when viewed through the theological lens of Matthew 10:39.

Or, put another way, perhaps it's God's version of Roth versus Traditional IRA.

Give it up now, and get a guaranteed free ride later.

Or enjoy it now... and roll the dice on what happens down the road...



BMK

[JohnH]

So this guy applies to join a monastery, and they explain that it takes many years and much devotion. Being very sincere, he starts his apprenticeship. The first day he is told that he must remain silent for 10 years.

At the end of the 10 years he's called before an examination committee and they tell him he can say 2 words, after which he must remain silent for 10 more years.
He ponders for a few minutes and says "BED HARD."

At the end of this10 years the committee calls him back and explains that he can now say 2 more words, after which he must remain silent for another 10 years.
He ponders for a few minutes and says, "FOOD BAD."

At the end of this 10 years the committee calls him back and explains that he can now say 2 more words, after which he must remain silent for 10 years, and then they will vote on whether he will be accepted into the order.
He ponders for a few minutes and says "I QUIT".

The abbot stands up and replies, "You may as well quit, you whiner - I've heard nothing but compliants out of you the whole time you've been here.!"

[Koss]

Every 10 Years

In the version that I heard some years ago, the guy was allowed to say three words at each interview:

(1) "Bed's too hard."

(2) "Food's no good."

And finally:

(3) "I want OUT!"


BMK

[MAMalody]

A retired priest has Social Security, a 1099-R and a stipend he received for each Mass he said.

The 1099-R shows a gross amount of 10,000 and a taxable amount of 5,000 (made-up figures). He has a statement from the Diocese showing his retirement income of 5,000 and a housing allowance of 5,000.

He is receiving retirement and working - is his housing allowance subject to income tax or SE tax because he's still saying Mass even though he's getting retirement income?

The prior preparer put the stipend on Sch C. Do I need to ask if he's taken a vow of poverty? If so, would this stipend (about 3,000) be Line 21 Other Income?

This is the first clergy return for me and I'm wondering if I'm thinking this through correctly. I would appreciate any...and all... help.

The housing allowance from his retirement income is not subject to SE tax, his stipend would be subject to SE tax.