Small Church-Filing Requirements

[ChEAr$]

A church that has a retired pastor, would use a W-2 to report taxable compensation. If all he receives is housing there is no requirement to issue a W-2 and you should not issue one. If you software is like mine, there is no way to transmit a W-2 with no entry in box 1 (box 1-6). It would not be on a 1099-R because we do not report earned compensation on a 1099-R. Since the church must designate the housing allowance for it to qualify to start with, the pastor should be able to get a copy of the miniutes, budget or whatever is being used to designate the amount and keep it for his records and use on the tax return. I would also not recommend putting the housing on a 1099-Misc. It very simply has no required reporting document.

yes, I'll withdraw my suggestion about using a 1099-misc, since housing allowance is not income taxable; regardless of my personal opinion!)

However, I suppose the church could use a W2 form for retired pastor, showing zero in boxes 1 - 6 and the housing allowance in box 14. No problem, except can';t file it with SSA, however it is good for reporting amount to pastor to make sure he realizes he needs
the amount for his reporting purposes; otherwise, he might "conveniently" forget about it,
and if caught, blame it on the church for not giving him a form.

[Burke]

Thank you for your responses. Since I don't transmit these electronically, there has been no problem with this in the past. The W-2 with housing coded in Box 14 apparently works fine, with no problems on the taxpayer's end that I am aware of. It seems to me this is easier than attaching a letter, etc. to the tax return. Since this is a minister who has opted out of SS, there is no treatment at all for him on his 1040. And I probably will discontinue doing one for him. Just for my own edification, would a retired minister who receives such a payment and has NOT opted out of SS, have to pay the SE tax?

[Earl]

Retired Minister

Not sure from OP whether the church is paying retirement or are paying the minister as an employee for current preaching.

If payment from church is retirement then the payment would be reported on 1099R with the full amount in Block 1 and 0 in Block 2, would also show that taxable amount not determined. Minister can then fill out worksheet (to be submitted with return) showing what portion of housing allowance is taxable if any.

Housing allowance designated for retired ministers are not liable for SE.

If minister is current employee of church reporting would be different. Form W2 could be completed showing 0 in wages with the amount of housing allowance in Block 14 and designated as housing allowance. IRS would then have the information that the minister received compensation and that it was non-taxable as housing allowance. Minister would complete worksheet (to be submitted with return) showing what portion of housing allowance is taxable if any based on fair rental and actual expenses.

[MAMalody]

While Earl's method of handling the W-2 with zero salary in box 1 and the housing allowance listed in box 14 is acceptable, I would just say again, that is NOT required. It is an optional handling. For those who electronically, file I don't believe you can transmit a W-2 with no entries in boxes 1-6 of the W-2; well, at least, my software/IRS won't allow e-file. Of course, the pastor would complete the necessary clergy worksheets showing the handling of the housing allowance, possibly the IRC 265 limitation also and any SE base computation, if needed.

In reference to the "conveniently forgetting" comment, I only do clergy and religious workers and have never had a pastor "conveniently forget" his housing allowance. In fact, just the opposite, they have, almost to a person, been quick to mention it so they can get the tax benefits associated with it.

[Burke]

Housing allowance designated for retired ministers are not liable for SE.

That is what I was looking for. I did not think it would be. Minister is retired and not currently active in the ministry. Entire retirement payment is desginated as housing allowance. I guess the 1099-R would work as you state, but I am a little leery of doing it that way. Will probably just keep on with the W-2 or just drop it from the group.

[Earl]

1099r

I have seen several 1099Rs in the past that were done this way. Can't remember but think they were from Southern baptist organization. The ones I have seen have the housing allowance listed on the form somewhere (can't remember where) but possibly in the account block.

[JohnH]

The Southern Baptist organization would be Guidestone, but I've never seen any place on the 1099-R with any sort of designation for the H&U Allowance. Same for the Methodist Board of Pension & Health Benefits. It's strictly an off-the-form paperwork thing as far as I know, although they usually mark the "Taxable Amount Not Determined" box just to give the retired minister leeway to report the facts. There's even a standard wording that the Methodist Pension Board recommends for the explanatory attachment. The 1099 is a standardized form - I doubt anyone can juist add blocks on it.

[ChEAr$]

....., although they usually mark the "Taxable Amount Not Determined" box just to give the retired minister leeway to report the facts.......

LOL! I love it!

[MAMalody]

Actually, they mark it "Taxable Amount Not Determined" because it is not determined.

[thomtax]

The Southern Baptist organization would be Guidestone, but I've never seen any place on the 1099-R with any sort of designation for the H&U Allowance. Same for the Methodist Board of Pension & Health Benefits. It's strictly an off-the-form paperwork thing as far as I know, although they usually mark the "Taxable Amount Not Determined" box just to give the retired minister leeway to report the facts. There's even a standard wording that the Methodist Pension Board recommends for the explanatory attachment. The 1099 is a standardized form - I doubt anyone can juist add blocks on it.

JohnH,
Guidestone provides a letter that is sent out with the 1099 that states that the individual has chosen to have this amount designated as housing allowance, but it is not shown on the 1099. I usually send a copy of this letter with the return, since the one year that I failed to include it, we had to do a lot of correspondence back and forth explaining things.
It might be that they only provide this letter to the ones that ask for it, I don't know.

LT

[JohnH]

That's good to know. I'll have to ask for the letter from Guidestone - my client isn't furnishing it right now. Apparently the statement the United Methodists recommend is accomplishing the task.