Youth Pastor

[POCAHONTAS]

I have never done a clergy before, this lady is a youth pastor with a W-2, and she has with holding and has $9000 housing allowance in box 14

I have read publication 517, but someone with experience will be very helpful, I don't want to make any mistakes.

Can any one please help???

Thank You

[MAMalody]

Pub 517 is the one you want. In short it goes like this. Assuming she qualifies as a dual-status minister the W-2 (with your info) should have entries in box 1, 2 (associated state boxes) and box 14 (not required). The amount of housing that is not subject to income tax is the lower of (1) amount designated (2) amount spent or (3) the fair rental value (with a few other items). Both the salary amount, designated housing and any honorariums (minius a few items) is subject to the SE tax. If this person has an approved Form 4361 they would be exempt from the SE tax. They may also still be in the application window to be exempt from the SE tax. You may want to check this out. You should get some good help on this board. I only do clergy returns and would be happy to answer any questions you may have. You may contact me directly at ClergyTaxes@aol.com. Be advised, if you contact me directly you will loose the peer review that is available on this board.

[POCAHONTAS]

have a client who received a W-2, with the amounts as below

box 1 11,213.52 wages
box 2 174.50 federal with holding
box 3 27153.60 social security wages
box 4 1140.45 social security withheld
box 5 27153.60 medicare wages
box 6 393.73 medicare withheld

box 14 15940.08 housing

They also supplied me with a request for parsonage allowance and an expense sheet which is attached, and she did get the whole amount she requested as housing allowance, client is a youth pastor she has youth at her house many times per week and says that she was advised by the main pastor that she should be able to claim all her deductions.

she does not have any other income from baptisms weddings, etc

she did not file form 4361, my question is if she had all the taxes taken out on her W-2 so would that mean that she would not have filed a 4361???

how would I report the above??? And what deductions can I take for her, my understanding is if she didn't have the weddings baptisms etc, then she would not have a schedule C so what ever deductions I am allowed would they go on form 2106 if so where and what deductions???

thank you

[Earl]

Be sure client is considered a minister according to IRS.


According to the IRS, ministers are individuals who are
duly ordained, commissioned or licensed by a religious body
constituting a church or church denomination. They are given
the authority to conduct religious worship, perform sacerdotal
functions, and administer ordinances or sacraments according
to the tenets and practices of that church or denomination. If a
church or denomination ordains some ministers and licenses
or commissions others, anyone licensed or commissioned must
be able to perform substantially all the religious functions of an
ordained minister to be treated as minister for Social Security
purposes. See IRS Publication 517.

[FEDUKE404]

Dealing with ministerial housing allowances

Be sure client is considered a minister according to IRS.

According to the IRS, ministers are individuals who are duly ordained, commissioned or licensed by a religious body constituting a church or church denomination. They are given the authority to conduct religious worship, perform sacerdotal functions, and administer ordinances or sacraments according to the tenets and practices of that church or denomination. If a church or denomination ordains some ministers and licenses or commissions others, anyone licensed or commissioned must be able to perform substantially all the religious functions of an ordained minister to be treated as minister for Social Security purposes. See IRS Publication 517.

While your point is valid, one would hope a religious organization that is paying someone ~$16k in housing allowance should already have finalized that aspect.

It's been some time since I prepared a tax return of this type, so I'm fuzzy over the process involved. I do recall the need to "prove" enough valid ministerial housing expenses to make the housing allowance funds remain untaxable (except for Social Security considerations). The FMV of the housing the minister actually uses can be a determining factor. Perhaps a good answer lies in the Q&A process with the OP's tax software and W2 income for a minister?

This link should be of use: http://www.irs.gov/faqs/faq/0,,id=199753,00.html

And this lengthy document shows several examples of tax returns/worksheets for ministers receiving housing allowances:

http://www.ccccusa.com/wp-content/uploads/2012/01/MinTax_Preparing_Sm_2012_Generic.pdf

FE

[WhiteOleander]

Well, the W-2 is prepared incorrectly. If the youth pastor is an ordained minister, he is considered an employee for income tax, but self employed for soc. sec tax. (this not optional)
That means that the church cannot withhold Fica and match it as is normally done on regular emplyees. The only boxes filled out on a properly prepared clergy W-2 is box 1 and perhaps box 2. The clergy member will pay the soc sec taxes himself and they will be calculated on form SE.
If the youth pastor mentioned here is not ordained, he is not entitled to a housing allowance. All wages must be reported in box 1 and the W-2 would be prepared as for a regular employee.

[Earl]

The W2 was the reason for my previous reply. Have found many churches that
have numerous people called minister (minister of music, youth minister, etc) but
fail to meet the requirements for IRS definition of minister.

[erchess]

Key Question

When I am unsure I ask the client "What do you do that could not be done by a layperson if you were home sick in bed when the time came for it to be done?" If their answer involves things like oil for anointing or water for baptism or washing of any kind or food for a sacred meal I ask whether some higher ranking person has to consecrate these materials before they use them and if so are there some in the religious group who are able to do that for themselves. I find that the IRS is willing to be flexible in looking at the practices of different groups but they're still looking for something in the way of worship or prayer or etc that the person does that is only done by special people like the client.

[MAMalody]

have a client who received a W-2, with the amounts as below

box 1 11,213.52 wages
box 2 174.50 federal with holding
box 3 27153.60 social security wages
box 4 1140.45 social security withheld
box 5 27153.60 medicare wages
box 6 393.73 medicare withheld

box 14 15940.08 housing

They also supplied me with a request for parsonage allowance and an expense sheet which is attached, and she did get the whole amount she requested as housing allowance, client is a youth pastor she has youth at her house many times per week and says that she was advised by the main pastor that she should be able to claim all her deductions.

she does not have any other income from baptisms weddings, etc

she did not file form 4361, my question is if she had all the taxes taken out on her W-2 so would that mean that she would not have filed a 4361???

how would I report the above??? And what deductions can I take for her, my understanding is if she didn't have the weddings baptisms etc, then she would not have a schedule C so what ever deductions I am allowed would they go on form 2106 if so where and what deductions???

thank you

With the W-2 information provided above, I would not think this individual qualifies as a dual-status pastor. As stated before, only box 1, 2 and 14 only would normally be filled out (and the corresponding state boxes). Therefore, they would not qualify for a housing allowance.(I have some serious reservations whether this individual would qualify as a pastor, regardless of the W-2 preparation). This reporting method would indicate the church considers them simply as a regular employee. Assuming they actually qualify as a minister, this is easily corrected with a W-2C. In reference to the Form 4361, that is a form that must be filed within the second year a minister receives $400 or more of clerical income. A review of their income records will determine whether they can file this form or not. With rare exception pastors are considered employees for professional expenses, therefore, they would report all eligible expenses on Form 2106.

[Earl]

If you do determine that client is minister and you will deduct expenses on Form 2106
be sure to remember to reduce the expenses by the ratio that the housing allowance
has to wages. You would only be able to deduct around 42% of the expenses in your
situation.

[Burke]

If you do determine that client is minister and you will deduct expenses on Form 2106
be sure to remember to reduce the expenses by the ratio that the housing allowance
has to wages. You would only be able to deduct around 42% of the expenses in your
situation.

If you have good software, there are worksheets which calculate this for you. Mine has 4 worksheets for clergy -- I do not always use them all. But a good one will compare the housing allowance between amt paid, actual expenses, and FRV to determine the amt eligible. Any excess goes on Line 7 as wages. And expenses are put on Form 2106, carried to Sche A if she qualifies to itemize. One of the worksheets will calculate SE tax accordingly.

If the "youth pastor" is not ordained, or if she is and has not filed Form 4361, or is not now eligible to file Form 4361due to the time frame (see MAMalody's post), then all income is taxable for social security purposes and income tax purposes.

[FEDUKE404]

At the risk of repeating myself ...

This is a well-written 66-page book on the topic:


"Preparing Tax Returns for Clergy"

http://www.ccccusa.com/wp-content/uploads/2012/01/MinTax_Preparing_Sm_2012_Generic.pdf

Prior: "And this lengthy document shows several examples of tax returns/worksheets for ministers receiving housing allowances:"

[veritas]

Another Option

The TaxBook

page 14-6 in the deluxe edition.

[Duane Anderson]

From Pastor's W-2

So in the example given, where there are wages reported in Box 1 and zero's in box 3 and 5, how does the IRS match the W-2 completed by the church to what is reported on the Pastor's tax return, since he is responsible for paying both portions of the social security and medicare taxes personally?

Thanks,,,Duane Anderson

[MAMalody]

Who cares how they do it...but, they do. If you fill out the tax return correctly, they can, do and will match it up. In my software, there is a drop down box to indicate the return is a clergy tax return. I don't know, however, that may be transmitted to the IRS with the return.