minister-w-2

[gman]

A w-2 for a priest is prepared with only boxes 1 and 2 with amounts. Box 1 is reported as SE income, but can it be offset with priest expenses?

[Super Mom]

Yes, they are considered self employed and an employee. Whether or not you can take expenses, depends upon how his wages were calculated. He is entitled to a housing and utility allowance IF it is approved by the church BEFORE he gets any money. If he got that, that is not income taxable but is taxable for social security and medicare unless he opts out of that (like if its against his religion to be a part). IF the church has an accountable reimbursement plan and his expenses were backed out of the box 1 wages, you cannot count those same expenses. HOWEVER, if the church does not have an accountable reimbursement plan, and those expenses were not paid by the church, he will show those expenses on a schedule C (I THINK that is the appropriate form, better check that--all of my ministers are on accountable reimbursement plans)

[DonB]

As an employee issued a W-2, his priest expenses would be Schedule A Miscellaneous deductions subject to the 2% haircut.

[JohnH]

And remember to apply the Deason rule when calculating his expenses.

[Super Mom]

And remember to apply the Deason rule when calculating his expenses.

Curious John--what is the Deason rule? Was I correct about the Schedule C?

[Super Mom]

OH my John--I wasn't familiar with that rule as all of my minister's are on accountable plans---thanks for the info!!! Yet another reason for a church to set up an accountable reimbursement plan and for the minister to follow the rules!

[JohnH]

I see you looked it up before I returned to the forum.
Yes, lots of times is it missed by tax preparers.

Keep in mind that it can still come into play if the minister has income from honoraria with offsetting expenses which he is reporting on a Schedule C, even if he is on an accountable plan with his church employer. It also affects any unreimbursed expenses claimed on the 2106 over and above those covered by the accountable plan.

[Burke]

A w-2 for a priest is prepared with only boxes 1 and 2 with amounts. Box 1 is reported as SE income, but can it be offset with priest expenses?

Yes. Hopefully, your software has a clergy worksheet. You will need to calculate the percentage of taxable income vs the percentage of non-taxable income (i.e, housing allowance) to determine the ratio of expenses which can be deducted. They go on Sche A, as DonB says, subject to 2% floor. And are allowed as a reduction against SE income.