Clergy W2

[Parent of Holy Terror]

The pastor has a W2 with box 1 and all other are blank except for housing in box 14.

My computer looks good with respect the the following.

The box one hits line 7.

UltraTax puts the housing AND line 7 on Schedule SE line 2.

Here is the question:

Is it legal to take deductions against Schedule SE line 2. Ultra tax allows me to adjust "non farm adjustment to SE Income" Can we take things such as journals, religious travel, and other ordinary and necessary expeses against this?

Thanks so much!

[RLymanC]

Parsonage allowance

If the church and the minister are exempt from Social Security and Medicare Care tax
there is no SE taxes due on the parsonage allowance.

The church should be exempt. If the Pastor has filed Form 4361 with the IRS, and that form was approved, he is also exempt from SE tax on wages as a minister, parsonage allowance and all income considered self-employment income received from preforming services for the church. Any other self employment income received from other services (yard care, carpentry, bookkeeping, etc.) will be subject to SE taxes.

For the earned income credit "parsonage allowance" is considered "earned income" for ministers if they are subject to social security tax, and is not included as earned income for an exempt ministers.

BOTTOM LINE: If the Minister has filed form 4361 enter W-2 box 1 wages on line 7 form 1040, do not include parsonage allownce, no SE tax on parsoange allowance.

[Armando Beaujolais]

The 4361 exemption is only for ministers who have religious opposition to insurance. It's not that common.

Yes, expenses can be taken against the SE income. Try TTB page 14-5. "A minister's employee business expenses associated with income as a church employee are allowed as a deduction for purposes of computing SE tax. This is in conrast to regular employees, where employee business expenses do not reduce FICA tax."

[John of PA]

Electing out of Soc Sec

To add to the earlier posts, the current trend is for ministers not to elect out of Soc Sec. What the church's are finding is if the minister opts out of Soc Sec; their is an enormoeus financial burden to the church when the minister retires, becasue they are not in medicare.

[Parent of Holy Terror]

Armando Knocks it out of the park

Great work Armando! You always answer the question that "should" have been asked.

Be good.

Thanks and keep posting.
Juan Carlos Garcia

[OldJack]

W2 gross on 1040 Sch-C

Not all Clergy are employees of the church even though the IRS publications indicate the church should treat them as such by issuing a W2 verses a 1099. Many Clergy insist they are not employees of a church and therefore prepare their tax return showing the W2 gross as income on 1040 Sch-C (like a statutory employee) and take appropriate business expenses.

James T. Alford, No. 96-3287, June 20, 1997,
United States Court of Appeals
FOR THE EIGHTH CIRCUIT, Appeal from the United States
District Court for the Western, District of Arkansas.

At all times relevant to this appeal, James Alford was an ordained minister
holding credentials in the Assemblies of God Church, a national religious organization with its headquarters in Springfield, Missouri.

We conclude that the General and District Councils' (Assemblies of God Church) right to control Alford, in combination with the common law agency factors present in Alford's relationship with the Hampton Church that weigh in favor of employee status, do not suffice to render Alford an employee within the meaning of the relevant provisions of the tax code.

Alford has met his burden of proving that the IRS's determination of his employment status for the tax years 1986, 1987, and 1988 was incorrect.