A retired minister is receiving income from the Board of Pensions of which a portion of this can be allocated to his parsonage allowance. It is the "lesser of" method under IRC section 107(2). If he receives $20K and only $16K is designated to parsonage(assuming this is the "lesser of " amount), how is this taxed? No SE or Federal income tax on the 16K? The difference of $4K taxed for federal only?
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If the "less of" rule is met, then there would be no federal income or SE tax on that amount. Don't understand why you said the remainder would only be taxed by federal though. -
"less of" should have been "lesser of"Comment
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federal tax
If the parsonage allowance is $16K, but he received 20K isn't the difference taxable income?Comment
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Yes. Perhaps I misunderstood your original message. The way it is worded led me to think that you were saying that it would be taxable only to federal. While it is taxable to federal it may also be taxable to his/her state, depending on the laws of that state.Comment
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retired minister parsonage
Just to make sure I understand, the portion of the pension received that is unused parsonage allowance is taxable for federal, soc sec, and for state purposes? Yes, this taxpayer has state income tax.
I seem to be reading conflicting information about whether there is soc. sec. tax on the pension that is unused parsonage allowance and that is why I am hoping someone else can tell me more on this subject.Comment
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Pastor's Income
One thing all of you are missing is the sum of expenses including books, auto, and misc. that the extra part of his pension may be used for. What's left is normal 1099 R income, that is taxable like anyother pension or annuity. No social security tax on this income. Of course the housing allowance for a retire minister is neither taxed as federal income or self=employed income. Read the IRS manual for members of clergy.Comment
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"One thing all of you are missing is the sum of expenses including books, auto, and misc. that the extra part of his pension may be used for. What's left is normal 1099 R income, that is taxable like anyother pension or annuity."
Why would a retired minister have expenses including books, auto, and misc that could be used to exclude a portion of his pension from taxation???
As I stated before, when the nontaxable portion of his/her housing allowance has been calculated using the "lessor of" rules, then the balance is taxable for income tax but not for SE tax.
It has been my experience that many tax preparers just blindly exclude from income whatever the church has allocated as housing allowance, without applying the "lesser of" rules. I wonder how many retired ministers get audited for this?Comment
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lRetired Ministers
Ministers who are retired from pastoring churches full time usually continue doing pulpit supply, visiting the sick, study and research for speaking engagements, conducting funerals and marriages, etc. This is where all those additional expenses come from. There is also additional income to the 1099R income, housing allowance, and the like.
You are correct that not many preparers ask if the pastor used all the housing allowance for costs of housing.Comment
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I agree that if the minister continues to do the things you said, then he/she will have some additional expenses. However, at least some of those activities would generate income. I believe that under those circumstances we are dealing with pure self-employment income/expenses reportable on Schedule C. If no income is generated, then we are dealing with charitable contributions of his/her time and expenses of which only the out-of-pocket expenses would be deductible on Schedule A.
At any rate, I know of no provisions that would permit these expenses to be used to exclude any portion of his/her retirement pension from taxation.Comment
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