PRIEST & SS

[gman]

Had the church secretary call me and ask about the Priest and Social security.
She received a letter from the diocese stating that the parish could pay half
of the social security-medicare amount and add it to his income. Then at year
end his w-2 would reflect the monthly wages plus the half of the social security
paid by the church. This would all be reflected in the Box 1 amount on the w-2.
My question is what should be subject to self-employment tax. The wages plus
the social security tax? Seems like this is paying self-employment tax on
ss & medi. care. Does that sound correct??

Thanks

[John of PA]

what is withheld?

Before I answer, Am I correct in assuming that no Soc and Med is withhled, but the Priest will pay it himself at year-end? IF this is the case, the added wages would be taxable and subject to Soc Sec & Medicare becasue it's really additional income or wages paid to ease the burden of Soc & Medicare. Something many for profit companyies would also do. I assume he did not elect out of Soc Sec. So at year end on his 1040, he has to pay 15.3 % SE tax on this total box 1 wages, plus he has to pay SE tax (but not income tax) on the value of his housing he receives living at the rectory. I usually use around 300 or 400/month for the rental allowance, given that they are only provided as private space a bedroom and den and bathroom, the rest of the house is common ex: kitchen, living room, etc. Hope this helps.

[Chief]

Priest and SS

To clarify John of PA"s point is that the stipend provided the priest to pay his SS and Medicare taxes is added to his taxable income. A denomination owned university in West Tennessee where I formerly worked allowed its employees who were ordained ministers to elect this same treatment.

[Armando Beaujolais]

Before I answer, Am I correct in assuming that no Soc and Med is withhled, but the Priest will pay it himself at year-end? IF this is the case, the added wages would be taxable and subject to Soc Sec & Medicare becasue it's really additional income or wages paid to ease the burden of Soc & Medicare. Something many for profit companyies would also do. I assume he did not elect out of Soc Sec. So at year end on his 1040, he has to pay 15.3 % SE tax on this total box 1 wages, plus he has to pay SE tax (but not income tax) on the value of his housing he receives living at the rectory. I usually use around 300 or 400/month for the rental allowance, given that they are only provided as private space a bedroom and den and bathroom, the rest of the house is common ex: kitchen, living room, etc. Hope this helps.

I'm not understanding your rental allowance allocation. The parsonage allowance, whether the home is provided or an allowance paid, must be designated as such in advance by the minister's employer. Are you talking about determining the proper rental allowance for the organization?

[John of PA]

Value of Lodging

I was referring to the value of lodging provided to priest (their room in the Rectory), that is where the priest pays no rent.. It is subject to Soc Sec tax & medicare tax (by entering the amt on Sch SE). It is not shown on the W-2. It is not subject to Fed Income Tax. Hope this is more clear. I do several priest (Catholic) taxes, that live in Rectory's.

[Snaggletooth]

Real World

The parsonage allowance must be designated as such in advance by the minister's employer.

Yes Armando, you're back to your old tricks - letter of the law versus real world.

In actual practice (never mind what SHOULD be), a much more likely scenario is that the minister tells you the church paid him $15,000 (or some other amount), and no one has ever told him how much of that is for a housing allowance. That decision is dumped on the tax preparer if he wants to file properly and put the buckets in the right place. Of course, all of this is discussed when the church is trying to figure out how much to pay its preacher, but most often there is only one total, and there is no discussion of how much for car expenses, housing allowance, or anything else.

Keep in mind also where I live (rural South), there are many more small, non-denominational, suddenly sprung up religious groups with 50 people or so, renting an old building. There are more Churches of this nature than there are established Churches who have been downtown for generations. I don't speak demeaningly of any of these Churches, but am only trying to relate the difficulties we deal with as practitioners. Arrangements with Ministers are much more structured and formal in larger Churches of established denominations.

[John of PA]

Established Churchs

I'am sorry, my experiance really does not include the small evangelical type churches ,where I would assume there is more room for negotiation about arrangements. Here in suburban Phila. it appears the opposite. The Catholic church is exploding. There are 4 new churchs/schools within 12 miles of me that sprung up over the past few years, each with 2 to 3 thousand families. There are also evangelical's including mega churchs springing up.

[theresa d]

to john of pa

do any of the priests you prepare tax for qualify for the EIC? i have one priest who would qualify even with the estimate of the value of his lodging. however i was leary to take since the lodging is an estimate. he was right on the border so i opted not to take. any thoughts?

[John of PA]

Take it

I would still take the EIC, as long as the estimated rental allowance does not appear to be unreasonably low. All my priest clients have W-2 wages that are high enough to automatically eliminate the EIC before even considering the rent allowance. Best Wishes.