Clergy Returns

[Smaman]

I'm having tremendous difficulty with the two clergy returns I have- getting the atx program to deduct their housing cost or allowance from income and dealing with the rules.

On one return, (retired clergy) she gets a pension of 6000 per year (box 1) , and it comes from Fidelity as a w-2. There is no amount listed as "housing allowance" in box 14 but I have a letter from the Board of Benefits services from her denomination stating that up to 100 percent can be designated housing allowance. Box 11 nonqalified plans filled in at 6000.00. When I fill in the w-2 record on ATX and designate "Clergy" in wage type, it does not remove the 6000 from line 7 of her 1040 and in fact it ends up adding the amount to her se taxes, increasing her tax bill! Even when I fill in box 14 with a 6000 housing allowance (even though it's not filled in on the w-2) it still does not remove the 6000 from line 7 1040. I've tried filling in the 1040 Clergy worksheet a million differet ways, called ATX and still cant get this to work.

I'm burning tons of time on this, and am charging very little to the clients- if someone could offer some help I'd really appreciate it.

Another question- the other clergyperson gets his penion income from the church on a 1099- I can't figure out a way to get a housing allowance to take in the program in that case either. Is there a reason why one gets a w-2 and the other a 1099?

[jainen]

>>I have a letter from the Board of Benefits services from her denomination stating that up to 100 percent can be designated housing allowance<<

Okay, but how much actually WAS officially designated in advance? According to Pub 517, "A definite amount must be designated. The amount of the housing allowance cannot be determined at a later date."

[JohnH]

The letter from the denomination should be sufficient to establish the advance desigation for the retired minister. This is a standard practice with many denominations, and perfectly acceptable.

The error I would often make with ATX would be to forget to fill in the Fair Rental Value of the home on the Clergy worksheet. The excludable amount is the smaller of 1) the designated amount, 2) actual expenditures, or 3) fair rental value of the residence (fullly furnished with all utlities paid). There are blocks on the clergy worksheet for all of these entries. Leave one out and the worksheet will carry the entire H&U allowance to the SE and also add it to line 7.

[MAMalody]

If I am interpreting the OP correctly you are saying that the $6000 in box 1 of the W-2 is their housing allowance. If that is true, the only way to get it off the return, that the IRS can follow, is to list the qualified portion on line 21 of Form 1040 as a negative number.

If you talking about how to compute the qualifed amount of housing allowance that should not be subject to income tax I have a worksheet that you can use and then you only have to transfer totals to the 1040 Worksheet in the ATX program. Don't forget the excellent point that JohnH pointed out about what turns out to be the qualifed amount.

On the second case, once you determine the qualifing amount you need to use line 21 again after determing the qualified housing allowance.

I see these all the time (I only do clergy returns) so we can figure it out. If the above does not solve your problem let me know and we will go at it again.

[JJStephens]

Because I do mostly clergy returns, I run into this kind of situation a couple times every year. Mike's suggestion to enter it as a negative entry on line 21 is what I've always done. It has been questioned only once by the IRS and then an explanatory letter resolved the issue.

[JohnH]

I have a couple of retired clergy who receive a 1099R and they have designated the entire amount as H&U allowance. I don't enter the 1099R on the return at all. I paper file, attaching an explanatory note to the return with a photocopy of the 1099R as a part of the explanatory note. Have never had that method questioned either. This method eliminates the need for entering the negative number online 21, but I don't know how it could/would work if filing electronically.