minister return - medicare tax withheld

[dkss]

Hi all!
I have a minister that is paid via a w-2. The odd thing is that they withheld medicare tax (no ss tax). When I go to do a sched SE for the clergy income, how do I account for the previously withheld medicare tax???

I don't do many clergy returns but it always seems every one is different - what a PITA! Makes me begin to hate pastors this time of year!

[gkaiseril]

More Information Needed

More information on the situation.:

Has the minister made the election and received approval with form 4361, Application for Exemption From Self-Employment Tax for Use by Minister, Members of Religious Orders and Christian Science Practitioners?

Is the clergy being paid by a government agency that is exempt from Fica but not Medicare?

Is there a parsonage or housing allowance exempt from income tax but suject to SE tax?

Waht is triggering the SE tax form?

[dkss]

answers

More information on the situation.:

Has the minister made the election and received approval with form 4361, Application for Exemption From Self-Employment Tax for Use by Minister, Members of Religious Orders and Christian Science Practitioners? NO

Is the clergy being paid by a government agency that is exempt from Fica but not Medicare? NO

Is there a parsonage or housing allowance exempt from income tax but suject to SE tax?
He lives in a parsonage provided by the church

Waht is triggering the SE tax form? his church w-2 income is subject to se tax

The answers are in the quote

[gkaiseril]

According to the flow chart on the front of Schedule SE page 1, you must use the long form of the SE tax computation on page 2. Also the fair rental value of the parsonage or the housing alloance plus utilities allowance is subject to SE tax, see the Schedule SE instruction.

[dkss]

church withheld medicare tax

I know about including parsonage allowance and the long se form. Maybe my original question wasn't clear.
My dilemma is - the church with held medicare tax (BOX 6) from his salary. From my research, the church should not have anything in box 6.
Is there any way to reduce his SE tax by the amount of medicare tax that the church withheld?

Thanks

[JohnH]

Possible error

Is it possible that the church withheld some income tax form his earnings and made an error in preparing the W-2 form? If so, they should correct the W-2 form.

It would also be helpful to add up his actual checks and determine what he was actually paid, then compare it to the reported amounts on the W-2. Finally, if it turns out that they did withhold Medicare tax on his earnings, they should just amend their reports & give him the money back.

Many times church bookkeping is performed by volunteers, and as is evidenced by this forum even tax pros get confused sometimes by clergy tax issues. You can imagine how hard it can be for non-profesisonal volunteers.

[gkaiseril]

Well, they did!!! And now you must explain the problem to your client and the options available or keep your mouth shut.

1. Do not make waves, pay the tax as usual and consider the additional taxes withheld a nuisance tax caused by the church's error. Probably an unpaid bookkeeper.

2. Can you get them to correct the W-2 and refund the wrongfully withheld Medicare taxes? Then just do the SE form as usual and your client will wait for the refund from the church. Just remember this minister must face this congregation every Sabbath and see the bookkeeper on a regular basis. This could a chance to provide some expert tax advice to the church,

If they will not fix this problem and the your client wants fight this, take the amount of the Medicare taxes based on the Medicare wages as an adjustment on line 12 or use the SE earnings on line 6 less the wages used to compute the Medicare taxes on the W-2 and necessary for the amount of the SE amount. Be sure to add "STMT" to line 12 and clearly and carefully explain why and how you modified the form. Be sure to offer to help with the correspondence from the IRS in this matter.

[MAMalody]

While I have never seen this before, and all I do is clergy returns, here is what I would recommend (it generally follows the advice above).

1. Request the client to get a corrected W-2. Help the church correct it if you must. You might tell them about the possible correspondence and penalties because of an improperly prepared W-2.

2. File the return, as is, and tell the client that he will need to simply eat the 1.45% that is duplicated in the SE form. You might at this time remind him that the church paid an amount that they did not have to and it is money lost to them if they do not file an adjustment.

I personally push fairly hard on #1 and to date have never had a church refuse to correct a W-2. In fact, I have been able to have about 70% of those making the corrections also give their portion to the pastor as a taxable offset.

Mike

[dkss]

many thanks for your advice

thanks to Mike, John, and gkaiseril for their responses to my question. It always helps to hear how other thoughts support or differ from my own. It is a lonely road in a small office and I appreciate this message board and everyone on it.

Happy Easter!
Debbie

[MAMalody]

I hear you talking and I agree!!


He Is Risen!

Mike