Clergy

[cpabsd]

I have an error on a clergy W-2. The W-2 looks as follows:

Box 1 – 7108 box 2 – 42

Box 3 16800 box 4 – 706

Box 5 – 16800 box 6 – 244

Box 14 – Housing allowance – 9692

What are my options to correctly report? A corrected W-2 is NOT going to happen. I have to handle this on the return.

This is a part time pastor who has a separate full time job. Is there any means by which to give the taxpayer credit for the tax that was incorrectly withheld from his pay for Fica and Medicare?

Suggestions are welcome.

[J. Ron]

It really needs to be done through a corrected W-2. To file it as it is is definitely not correct, but I do not know of anyway to file correctly if they refuse to correct it. I am copying a quote from B.J. Worth's book, Income Tax Guide For Ministers.

"• Two Ways To Handle The Corrections

1. When the employer is willing to count their matching portion as extra salary for the minister:

a. Prepare 941c and an amended 941 to reflect the changes made. You will not be requesting

a refund on the 941c.

b. Prepare W-2c and W-3c showing matching portion added to “Wages, tips, other compensation”

as additional salary.

c. Include total amount of social security withheld and matched as income tax withheld in

“federal income tax withheld.”

d. Prepare an amended return for the minister. The minister will have credit on his 1040X for

the total social security amount withheld and matched. Depending on the level of his total

income, he may have a small refund or owe a small amount of additional tax, plus interest

on the balance.

2. When the employer wishes to keep their matching portion:

a. Prepare 941c and an amended 941 to refl ect the changes made and claim a credit on the

next quarter’s 941 or fi le Form 843 to claim a refund for the employer’s matching portion.

b. Prepare W-2c and W-3c showing original salary in “Wages, tips, other compensation.”

c. Include amount of social security withheld as income tax withholding in “federal income tax

withheld.”

d. Prepare an amended return for the minister. The minister will have partial credit on his

1040X for social security computed on Schedule SE and will incur interest on the balance

owed."

This is the only source I have found that gives specific instructions on corrections. If the employing church will cooperate it can be done correctly.

[Lion EA]

By NOT adding the housing allowance on Schedule SE (because it's already included in Boxes 3 and 5) can you achieve what you want? I'd prefer a corrected W-2. Put him on extension and urge the correction.

[cpabsd]

Thanks for the guidance. Client is giving information to church to see if they will correct the W-2. Apparently, I'm the first accountant to tell one of the pastors the W-2 was wrong. Just goes to show that there are a lot of preparer's who do not understand clergy tax. The pastors apparently go to the same person that prepared the W-2's.

[JohnH]

This ought to be interesting...

[MAMalody]

I talked to a tax attorney who specializes in clergy taxes a couple of years ago on this exact issue. Conclusion: pastor is not dual-status therefore does not qualify for housing allowance. Only solution is for the W-2 to be corrected. I get about one or two a year like this. Usually when it is explained to the church what is going on it gets corrected.