Minister's Withholding

[lenboush]

I have prepared many tax returns for ministers over the years but had an unusual W-2 come through today. I wondered if any of you had ever run into this.

It is not uncommon for ministers to have very large Federal withholdings since most of them have no withholdings to cover FICA and Medicare. This particular W-2 form, however, had Box 2 Federal Withholdings that exceeded the wages in Box 1.

The only reason they were able to do this is that the minister was also paid a housing allowance that showed in Box 14. So the withholding represents 100% of wages plus some dollars that were held from his housing allowance.

A review of the dollars proves that all the numbers are 100% correct, but of course, the return cannot be e-filed. I am not entirely comfortable even paper filing this, but as far as I can tell, every thing is accurate.

Does anyone have a cite that says that withholding in Box 2 cannot exceed the wages in Box 1, even though there is a perfectly legitimate expalantion?

Any responses will be greatly appreciated!

[JohnH]

The facts are what they are. So as I see it you don't have any choice but to paper file it if you are satisfied that the numbers are correct. (well, of course you do have the option of refusing to file it at all if you have any suspicions about the numbers)

He might expect IRS to question the return if he claims that he spent the entire H&U allowance when part of it went to pay withholding taxes. But if he is pulling some of the H&U allowance back into income, or if there was other household income which helped pay the H&U expenses, then even that question might be easily answered.

I do agree it's odd-looking. Is there a working spouse or some additional source of income to account for the oddness?

[MAMalody]

All I do are clergy returns and I have never seen one like you describe. As JohnH indicates it is not unsurmountable to paper file the return. I would also agree with John that there must be other income. I would recommend that he have greater withholdings from the other sources of income so that his return/information is cleaner in the future or to make SE payments.

[taxmanken]

Excess withholding

My practice includes several hundred clergy and a good number of them are co-vocational. In other words, they have other sources of income and their clergy compensation is rather small. It is not at all unusual for the federal withholding to exceed the federal wages. Of course, the return cannot be efiled, but I have never had any problems with these returns. I'm sure I've had a hundred or more of these in the past without a single piece of correspondence from the IRS. We do payroll for about 70 churches and we've learned that we have to have at least $1 in federal eages in order for the W-2 to be filed electronically. Having the withholding exceed the wages isn't a problem in regards to filing the W-2 electronically.