Clergy Salary

[TKTax]

I just received a pastor as a new client. He receives a W-2. Their former accountant has been adding his 403- B  contribution from box 12, and his life insurance from box 12, to his taxable income on the clerical worksheet. I have never done this. Have I been missing something?

[jasdlm]

Is it to correctly calculate the SS and Medicare?  MAMalody is a good resource on this, as is JJStephens, although I'm not sure I've seen him around much this year.

[Margaret CPA in OH]

From 2016 Church and Clergy Tax Guide, Richard Hammar, JD, LLM, CPA:

A 403 (b) plan has several tax advantages: You do not pay tax on contributions to your 403(b) plan in the year they are made.  (And so forth just like other retirement plans with deferred comp)

Elective contributions (through salary reduction) to a 403(b) plan do not necessarily constitute self-employment earnings in computing the self-employment tax liability of a minister.

However, if these are after-tax contributions (made with funds that you must include as income on your return, they are not excluded from income and are not deductible.  I think you need to check to see whether they are pre or after tax.

For life insurance premiums, the cost of employer provided group term life insurance is excluded so long as the amount of the coverage does not exceed $50,000.  So I think you need to ask whether that amount is already included in Box 1.

When I was church treasurer for 7 years and prepared the payroll, these items were treated as pre-tax (deferred comp) and included in box 1 (life insurance premiums in excess of $50K coverage).  I think you have to ask the church treasurer or payroll service to see how these were actually processed to be sure.

[MAMalody]

Typically, the 403(b) contribution would not be part of his taxable income.  The regular life insurance rules should apple his life insurance,see if the amount is required to be reported in box 1 and if it was, if required..