exempt clergy EIC

[jrcory]

Clergy is exempt (4361). I want to verify that he does not have to include housing allowance as earned income when calculating EIC as he is exempt from SE tax. Salary is 30K, housing allowance is 25K. Has three children. Thanks.

[kathyc2]

Clergy is exempt (4361). I want to verify that he does not have to include housing allowance as earned income when calculating EIC as he is exempt from SE tax. Salary is 30K, housing allowance is 25K. Has three children. Thanks.

As illogical as it is, if housing allowance is subject to SE tax it is earned income for EIC purposes and if not subject to SE it is not earned income.

Makes about as much sense as a contribution to 401K reduces earned income while a contribution to IRA does not.

[Lion]

If he is exempt, doesn't that mean he does not believe in accepting government assistance? Then why does he want EIC?

Housing allowance is SE income.

But, if he has NO income for SE purposes due to being exempt, then does he even qualify for EIC?

You have several things to research back to the tax code, starting with what it means to file Form 4361.

[kathyc2]

If he is exempt, doesn't that mean he does not believe in accepting government assistance? Then why does he want EIC?

Housing allowance is SE income.

But, if he has NO income for SE purposes due to being exempt, then does he even qualify for EIC?

You have several things to research back to the tax code, starting with what it means to file Form 4361.

I got a good chuckle out of the first sentence....

Whether or not it's included is spelled out in Pub 596:


Minister's housing. The rental value of a home or a housing allowance provided to a minister as part of the minister's pay generally isn't subject to income tax but is included in net earnings from self-employment. For that reason, it is included in earned income for the EIC (except in the cases described in Approved Form 4361 or Form 4029 , below).

Approved Form 4361 or Form 4029

This section is for persons who have an approved:

•Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, or

•Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits.

Each approved form exempts certain income from social security taxes. Each form is discussed here in terms of what is or isn't earned income for the EIC.

Form 4361. Whether or not you have an approved Form 4361, amounts you received for performing ministerial duties as an employee count as earned income. This includes wages, salaries, tips, and other taxable employee compensation.
If you have an approved Form 4361, a nontaxable housing allowance or the nontaxable rental value of a home isn't earned income. Also, amounts you received for performing ministerial duties, but not as an employee, don't count as earned income. Examples include fees for performing marriages and honoraria for delivering speeches.

Form 4029. Whether or not you have an approved Form 4029, all wages, salaries, tips, and other taxable employee compensation count as earned income. However, amounts you received as a self-employed individual don't count as earned income. Also, in figuring earned income, don't subtract losses on Schedule C, C-EZ, or F from wages on line 7 of Form 1040."

[jrcory]

Clergy

If he is exempt, doesn't that mean he does not believe in accepting government assistance? Then why does he want EIC?

Housing allowance is SE income.

But, if he has NO income for SE purposes due to being exempt, then does he even qualify for EIC?

You have several things to research back to the tax code, starting with what it means to file Form 4361.

*** Income is from W-2 salary with no FICA removed in Box 2 of W-2 because he is exempt. I'm not questioning the ethics of the 4361, but it does not exclude him from receiving EIC if he meets those qualifications. Clergy are a rare breed.

[jrcory]

Clergy

Thank you, kathyc2. Your knowledge/research verifies what I discovered. I just needed non-judgmental reassurance that I was not overlooking anything. I appreciate your feedback.

[Burke]

Pay special attention to the HSA rules. You say his salary is $30K, and HSA is $25K. That is $2,083.34 per month for the HSA, which may or may not be allowable depending on what the FRV of the home is. It is the lesser of the two.

[Lion]

Lesser of THREE: Housing Allowance, FMR furnished as is, and what the clergy person actually spent on housing.

[RitaB]

Agree

Lesser of THREE: Housing Allowance, FMR furnished as is, and what the clergy person actually spend on housing.

Yes, except I think your door #2 is "fair rental value of furnished house plus actual cost of utilities".

Also agree with Burke - it sounds like there may be excess housing allowance.

[MAMalody]

<<<You have several things to research back to the tax code, starting with what it means to file Form 4361.>>>

Not relevant to the question.

[Lion]

Yeah, I researched. Thought it meant ALL government assistance, but it's really specific to retirement and medical, especially SS and Medicare. So, "welfare" type of help, such as EIC, is permitted. (Seems a little two-faced to me, so I probably wouldn't attend his church. But, it's legal.) What about Obamacare? Expanded Medicaid? PTC? Don't have a clergy person client at this time, and in Fairfield County he'd be unlikely to qualify for PTC unless he worked really part-time, but as long as the experts are weighing in....

[Burke]

Yes, except I think your door #2 is "fair rental value of furnished house plus actual cost of utilities".

Also agree with Burke - it sounds like there may be excess housing allowance.

Yup, Lion and Rita are both right. Should have clarified that in my answer.

[Super Mom]

Does your software have a clergy tax worksheet? That should be helpful to you if so. In my software (ATX) it is called clergy worksheet and is 4 pages long.