Pastor's housing allowance

[GIMoe]

SE Tax

The problem for this new Pastor is SE tax on W-2 box one and housing allowance amounts to around $3300 for the year...

Don't forget any additional stipends received for weddings, funerals, etc... may not be on the W-2 and you will need to do Sch C for these.

Also, don't forget to deduct the allowable unreimbursed employee business expenses before calculating SE tax.

See PUB 517. Example return starts on Page 13 & workshets you can use on page 23.

[thomtax]

Jon

As I said in an earlier thread, you have to be in one of the smaller churches to understand the dynamic.

Everything is done on a voluntary basis. Many times the treasurer of the church has no idea about taxes, they are there to pay the bills and keep the checkbook. They are not tax people and my earlier statement was "They were either absent at the business meeting or were the slowest to run away, so they were elected treasurer". By the way, my wife is treasurer in one of these situations, so I see it firsthand. She only took it because she knew I would help her.

One of the other posters noted that one situation he deals with, the treasurer hands the preacher a blank W2 and tells him to fill it out. He then takes the blank W2 to his tax preparer to be completed. So it's not a real sophisticated situation, but it is reality in the too small and broke to hire it done world.

LT

[JON]

Thank you

The problem for this new Pastor is SE tax on W-2 box one and housing allowance amounts to around $3300 for the year and now withholding. The finance person at the church I think should have seen it coming and had federal withholding (not Fica) to at least help the blow.

Oh well, she has the numbers and the problem.

[thomtax]

Churches are not allowed to deduct the FICA and Medicare. If they agree, income taxes may be withheld.

The IRS does not require that the housing allowance be shown on the W2. It may be shown but is not required.

The reason that the other amount is shown on the W2 is because the housing allowance must be set up by the church "prior" to the year in question. This amount is usually requested by the pastor and should be more than he knows will be spent to allow for unexpected expenses. He is allowed to spend less, but not more than allowed. Qualified expenses are then figured, up to the fair rental value, and then any additional added to the amount of wages. Keep in mind that, according to some experts, this rental value could be calculated for the house and furnishings.

Bottom line - all of it is subject ot SE. For income tax, only the amount that is not paid for housing allowance.

Hope this helps.

LT

[JON]

The allowance is always subject to SE tax, right?? If spent on housing or quailified expenses it is not subject to income tax, right? Why would a church still have the rest of the salary in box 1 as taxable with no withholdings fro anything??? Help