Clergy

[Lynn EA USTCP in Louisiana]

My clergy client has a contract that encompasses 3 tax years, with dates of service listed as:

September 9 -10, 2018

September 18-19, 2018

September 29-30, 2019

October 8-9, 2019

September 18-19, 2020

September 27-28, 2020

For the clergy experts here, should the clergy go back to the congregation for a new contract in each of the next ensuing two years?  Or will this one contract, covering 3 tax years, suffice?

Thanks, Lynn

[Margaret CPA in OH]

Sorry, Lynn, there is nothing in my Church and Clergy Tax Guide about contracts and I, personally, have never heard of them for clergy.  It seems strange for only 2 days at a time, too.  As it is a contract issue (as I see it), perhaps this is better addressed by an attorney familiar with contracts especially for clergy.  And I'm not sure what the actual question is and/or how it relates to tax other than covering 3 tax years.  Interesting situation!

[Lynn EA USTCP in Louisiana]

My understanding is that for the housing allowance to be 'nontaxable' it must be designated in the employing contract and BEFORE the first check is paid to the clergy.  Further reading in Hammar's Church and Clergy Tax Guide did have one or two lines regarding contracts that cover more than one year.  So, I think in the long run my client is ok with the contract covering 3 years. 

The other issue with this client is that the contract designated all of her remuneration to be housing allowance, and the congregation's 'bookkeeper' issued her a 1099-MISC with that amount in box 7 instead of the W2 with all boxes of -0- except Box 14, $xxxx.xx housing allowance..  My client wanted me to call the bookkeeper and I refused to do so.  There's a workaround for this. 

[Margaret CPA in OH]

Interesting!  I cannot find in the index of my 2018 guide any reference to contract or employee contract.  Also, in my denomination (Presbyterian) there is no contract, rather a call with terms of call including the designation of a housing allowance.  You are correct that the housing allowance must be designated before the new year.  It is in effect only on designation by the governing council and in the minutes.  We've had that issue from time to time when the session didn't take action timely.  The amount remains the same unless changed by action.

I went back and looked at Chapter 2 and see about contractual clergy.  However, if they are not employees, I don't see how they could receive or expect a W-2.  That's what we have always issued. What is your workaround?  Just negating is on Sch. C as designated housing?  If it is in the contract, the support is clearly there.

Just curious: if you know, why is this contract for only 2 days at a time twice yearly?  While having lived many years and been quite involved in my church in various capacities and having had clergy clients, this is new to me.  I am happy to learn something new.

[Lynn EA USTCP in Louisiana]

This clergy is a cantor that works for the congregation at Rosh Hashanah and Yom Kippur. 

You are right about the housing allowance - it’s not in the contract but stated in the congregation board minutes. 

 

Thanks , 

Edited February 1, 2019 by Lynn EA USTCP in Louisiana
Spelling

[Margaret CPA in OH]

Aha!  Learned something new, thanks to you, Lynn.  I have no experience with the Jewish faith and the relationship between congregations and clergy so all very interesting.  When we lived in Boston, our son's best friend was Jewish and we did attend some service with them that included noisemakers.  So limited experience, for sure. 

So how do you intend to handle the housing allowance (given that no W-2 is forthcoming)?

[Evan S. Golar]

The "noisemakers" were during the 1 day holiday of Purim that takes place between February or March.

It never would be during the High Holidays from Rosh Hashonah to Simchas Torah.

[Lynn EA USTCP in Louisiana]

Margaret, I am going to report the 1099- misc income on sch c, back it out with the description, designated housing allowance, then make a ‘dummy w2’ in my system for the housing allowance. I do not think I can get the housing allowance to show up in ATX otherwise, 

[BulldogTom]

30 minutes ago, Lynn EA USTCP in Louisiana said:

Margaret, I am going to report the 1099- misc income on sch c, back it out with the description, designated housing allowance, then make a ‘dummy w2’ in my system for the housing allowance. I do not think I can get the housing allowance to show up in ATX otherwise, 

Let me know how that works.   I have a very similar situation and I had know idea how to make it work with the Clergy worksheets.   If you could spare a few minutes after you do it and explain the process, I would be forever grateful.   I told the client they might go on extension this year just to cover my bases.

Tom
Modesto, CA

[Lynn EA USTCP in Louisiana]

Bulldog Tom, I will report back.  But, it will be a while before I receive this client’s tax info as this return contains LOTS of moving parts. Usually it is late March, early April before all info is in. 

[jasdlm]

I find that I often have to walk Churches (where the minister is my client) through filing (or amending) the appropriate paperwork for Clergy.  It is often a secretary or volunteer who is preparing the document.

My understanding is that the Church does have to approve the housing allowance once the minister designates the same (i.e. our Church Council 'approves' the housing allowance for our minister every year, and it is in the council minutes).  The housing allowance should be in the call letter.  I have never known of a requirement for an annual contract - just an annual approval by the Church governing body.

Are MAMalody or JJStephens still on this Board?  They are extremely helpful in the Clergy Tax arena.

[Margaret CPA in OH]

Thanks for the reminder.  Purim does sound right.  Methinks it would be a good thing to study up on world religions and be less uninformed.  Who knew one could learn more than tax stuff here even by accident?

[Margaret CPA in OH]

Oops, I apparently forgot to post the reply above.

Meanwhile, back at the ranch, I don't think I would be comfortable creating a dummy W-2 - matching thing.  It seems your Sch. C in and out should work with back up documentation for when the nasty gram arrives to show that the allowance was properly and timely authorized and reported incorrectly by entity which refused to change it.

Yes, let us know the outcome.

[MAMalody]

A multiple year contract would be fine and if they choose to designate all/some as housing allowance, this would be the place to do it.  The designation must be prior to the payments, whether the designation is at the first of the year or otherwise. In your case, if the contract was prior to the first payment in 2018 and covers the entire time period you specified, you would be good for all payments.

The Clergy Worksheet #4 with ATX will allow the housing allowance to be used for SE Base computation.  The Clergy Worksheets for 2018 tax year have not yet been posted by ATX, nor Publication 517 by the IRS - so I am assuming that it will be carried over and handled like prior years.  I have not seen anything that would change that.

I would not recommend a "dummy" W-2. Your work around for the Sch C would be fine.  I have done that before.  ATX will not accept a W-2 with no entry in Box 1. 

[MAMalody]

OOps.  I just checked and the ATX Clergy Worksheets have finally been update and loaded.  You can enter the Housing Allowance amount on worksheet #3 for 2018 tax year.