Housing Allowance- Non Clergy

[Taxadvisor VA]

Client received a 1099 Misc with $900 in box 7- non-employee compensation. His employer provides a housing allowance of $300 per month if you live in a certain area. I thought this would be listed in box 3- other income. I don't believe this payment is subject to self-employment tax.
However, it is listed in box 7, which may cause IRS to think a Schedule C should be attached.

What's your read? SE tax or not? I currently have it on line 21 other income on 1040.

Thanks,


Taxadvisor VA

[JohnH]

I think it should have been included in his gross wages on the W-2 in the first place. If I'm correct, then reporting it on Schedule C and paying the S/E tax would have the net effect of only costing him $72 (8% of the SocSec tax - an amount which the employer would have paid if it had been done properly.) Everything else he would have paid anyhow - employer half of the SocSec tax, income tax, etc.

I realize he's not in the business of living in a house so Schedule C really isn't applicable, but at some point you have to decide how much trouble you're going to endure for $72 and what you'll have to charge him for getting it all straightened out.

Now if the subsidy continues into this year, the client might want to have a converation with the employer about the proper treatement of the subsidy going forward. That might yield some positive results.

[Taxadvisor VA]

Housing Allowance- Non Clergy

JohnH

Thanks for your input. I do agree it is a minimal amount in 2012 and client told me that he will receive this allowance for the whole year in 2013 so $3,600 is a much larger number.

Your take is that it is tied to compensation as a taxable employee benefit. This probably why employer is putting it on a 1099.

Thanks again,

Taxadvisor VA

[JohnH]

Yes, but I think the employer is wrong in reporting it on a 1099. It should be a part of gross wages since it it a personal living expense. Maybe there's some sort of exception here, and if so then perhaps someone else will jump in and correct me.

[Burke]

John is absolutely right. Employer needs to review IRS rules for reporting compensation. It goes on his W-2 subject to all withholding and FICA taxes. He needs to add it each pay period. It is treated like a bonus.

[Burke]

What's your read? SE tax or not? I currently have it on line 21 other income on 1040.
Thanks,
Taxadvisor VA

You can leave it on Line 21, but you still need to complete Sche SE.