Minister/Additional Child Tax Credit Question

[j2kp0t]

Taxpayer is a minister who has one W-2 with no SS/Med W/H because he has Form 4361 on file. He and his wife have a child who would qualify for the Child Tax Credit if there were any tax to pay. It seems, from all the worksheets, that he should be getting the additional child tax credit, but my software is assuming that he has no earned income for the purposes of this credit, and I don't know why. I can easily imagine that there's some sort of restriction keeping him from getting the credit but I can't find it. Any thoughts?

(My software company, bless its sweet and anonymous name, is trying to tell me that the Additional Child Tax Credit isn't showing up because it is Non-Refundable.)

[erchess]

I think you should tell us who

your software company is and preferably the name of the moron with whom you are dealing.

Does he have earned income? I doubt that his housing allowance qualifies although I don't know that for sure.

[j2kp0t]

His W-2 shows almost $19K in income; his housing allowance is another $24K.

As to my software... Usually, support is a gem; must be a bug going around.

[BP.]

Is there any EIC? Have a look at the Form 8812 instructions for line 4a. There's something there about reducing earned income reported on line 4a by the clergy housing allowance amount. That might be creating insufficient income on which to base the ACTC.

[j2kp0t]

That's certainly possible. However, I have looked at the instructions of the 8812 and can find no directions about such a reduction. Perhaps I'm blind... I'll look again.

[Bonnie]

. It seems, from all the worksheets, that he should be getting the additional child tax credit, but my software is assuming that he has no earned income for the purposes of this credit, and I don't know why. I can easily imagine that there's some sort of restriction keeping him from getting the credit but I can't find it. Any thoughts?



I think I figured this one out earlier this season for the first time. I've struggled with this for several years. To calculate EIC for a minister--add wages and housing allowance then subtract employee business expenses (which is the figure that the SE is based on and then subtract 1/2 of SE and this is the figure that EIC is based on. In your case there would be no 1/2 of SE to subtract so the EIC if any would be wages+housing-employee business expenses

For ACTC the housing allowance is not taken into consideration so for that figure you take the amount the EIC is based on and subtract the housing allowance and use that to figure ACTC. Your customer has a larger housing allowance than wages so it probably wipes out the income for ACTC.

It seems that they are getting the raw end of the deal as the EIC is based on the highest number and ACTC based on the lowest. I haven't figured out what the reasoning is for this.

Bonnie

[veritas]

How is he getting the raw deal?

No income tax on his housing allowance. And he doesn't pay fica tax? Sounds like a better deal than most other Americans.

[thomtax]

Taxpayer is a minister who has one W-2 with no SS/Med W/H because he has Form 4361 on file.

Form 4361 does not matter. churches are not allowed to withhold ss from checks. They can withhold FWH but not the other. It is up to the minister to pay both sides if not opting out.

LT

[Bonnie]

Fica

No income tax on his housing allowance. And he doesn't pay fica tax? Sounds like a better deal than most other Americans.

He'll never draw either, but then who knows if the rest of us will either. I like thinking I will draw SS and even more so the advantages of Medicare as I can't imagine having to pay for my own medical insurance at that age.

Bonnie

[thomtax]

He'll never draw either, but then who knows if the rest of us will either. I like thinking I will draw SS and even more so the advantages of Medicare as I can't imagine having to pay for my own medical insurance at that age.

Bonnie

The biggest argument that I have seen against withdrawing from ss is that if you become disabled, there is no help there in the form of disability payments. Some people argue that this is not being responsible.

LT

[MAMalody]

. It seems, from all the worksheets, that he should be getting the additional child tax credit, but my software is assuming that he has no earned income for the purposes of this credit, and I don't know why. I can easily imagine that there's some sort of restriction keeping him from getting the credit but I can't find it. Any thoughts?



I think I figured this one out earlier this season for the first time. I've struggled with this for several years. To calculate EIC for a minister--add wages and housing allowance then subtract employee business expenses (which is the figure that the SE is based on and then subtract 1/2 of SE and this is the figure that EIC is based on. In your case there would be no 1/2 of SE to subtract so the EIC if any would be wages+housing-employee business expenses

For ACTC the housing allowance is not taken into consideration so for that figure you take the amount the EIC is based on and subtract the housing allowance and use that to figure ACTC. Your customer has a larger housing allowance than wages so it probably wipes out the income for ACTC.

It seems that they are getting the raw end of the deal as the EIC is based on the highest number and ACTC based on the lowest. I haven't figured out what the reasoning is for this.

Bonnie

Hmmm. As I remember it, the above does not describe either the minister with or without the approved Form 4361. As I understand it, for ministers who are subject to social security and medicare taxes, earned income includes wages, value of parsonage and/or parsonage allowance, and Schedule C net honorariums, less adjustment for one half of self-employment tax.

For the minister who has become exempt from social security and medicare tax (our instant case), earned income includes wages, including unused or excess housing/parsonage allowance, but not Schedule C net honorariums.

That's what I remember.

[Bonnie]

QUOTE:[

For the minister who has become exempt from social security and medicare tax (our instant case), earned income includes wages, including unused or excess housing/parsonage allowance, but not Schedule C net honorariums.




For EIC the earned income includes the housing allowance.

For ACTC the earned income does not include the housing allowance which is what the original question referred to.

Bonnie

[MAMalody]

QUOTE:[

For the minister who has become exempt from social security and medicare tax (our instant case), earned income includes wages, including unused or excess housing/parsonage allowance, but not Schedule C net honorariums.

===================
For EIC the earned income includes the housing allowance.

For ACTC the earned income does not include the housing allowance which is what the original question referred to.

Bonnie

Interesting.....however, I disagree. Sec 32(c)(2)(A) says: The term "earned income" means -
(i) wages, salaries, tips, and other employee compensation, but only if such amounts are includible in gross income for the taxable year, plus
(ii) the amount of the taxpayer's net earnings from self-employment for the taxable year (within the meaning of sectin 1402(a)), but such net earnings shall be determined with regard to the deduction allowed to the taxpayer by section 164(f).

For me, loosely interpreted, if you are a minister exempt from Social Security and Medicare, then you do NOT include qualified housing allowance as part of earned income. You would, however, need to include any unused or excess housing because it has become a part of gross income (therefore, earned income) for the taxable year.

Mike

[j2kp0t]

How blind of me.

How blind of me; I must have read it six times and missed it. From the 8812 isntructions: "If you were a member of the clergy, subtract (a) the rental value of a home
or the nontaxable portion of an allowance for a home furnished to you (including payments for utilities), and (b) the value of meals and lodging provided to you, your spouse, and your dependents for your employer’s convenience." So, the nontaxable portion of his housing allowance is what is disallowing the ACTC. Thanks for everyone's input!

[Bonnie]

How blind of me; I must have read it six times and missed it. From the 8812 isntructions: "If you were a member of the clergy, subtract (a) the rental value of a home
or the nontaxable portion of an allowance for a home furnished to you (including payments for utilities), and (b) the value of meals and lodging provided to you, your spouse, and your dependents for your employer’s convenience." So, the nontaxable portion of his housing allowance is what is disallowing the ACTC. Thanks for everyone's input!

Yes, I know, it was hard to find. Back in Jan when I was working on my son's tax return (who is the pastor), I struggled for the longest trying to figure this out. My son couldn't figure out why it was taking me so long to do the return. He would never understand how difficult it is to sort out everything in his case because it is so different from the norm. Then I found it, like you, on the instructions for the 8812. So from now one I will remember this one.

Bonnie