Tax return for minister

[Linda Mathey]

I was asked by my minister to prepare his tax return as his account just retired.  I have never prepared a tax return for a minister before.  I asked for a copy of his last year's return.  I noticed that his w2 showed no social security or medicare taxes withheld.  However when the 2018  return was filed Schedule SE was prepared and he paid SE tax on his earnings.  However they did nothing with his housing allowance.

In doing some research by reading Publication 517, it appears that his housing allowance while not subject to income taxes is subject to social security taxes.  I use ATX and when I add the form for ministers and show the housing allowance it also adds it to taxable income.

My questions are:

1.  Am I correct that  the housing allowance subject only to SE tax?

2.  If yes, how can I get it in ATX without the program trying to subject it to federal and state taxes.

 

Thanks in advance for any suggestions or insight you can add.

 

Linda

 

 

[Margaret CPA in OH]

1. You are correct.

2. Add the 1040 Clergy Worksheet form which will be extremely helpful in putting things where you know they should go.

Ask again if you still have questions.  I and others here have much experience with clergy tax returns.  And I always keep a copy of Church and Clergy Tax Guide handy.

[Linda Mathey]

Margaret

I added the 1040 Clergy Worksheet form and entered the housing allowance on line 4a.  However when I do that it carries it to page 1 line 1 and adds a notation of excess allowance. 

Thereby causing the housing allowance to be subject to federal and state income taxes. The Schedule SE is computing correctly.

How do I get the housing allowance entered on the Clergy Worksheet not to carry to page 1, line 1?

Thank you so much for your assistance.

Linda

[Margaret CPA in OH]

On the worksheet you also have to complete the other applicable information.  See the Note. above that area.  If only the allowance is entered without the offsetting information, it is excess allowance and taxable.  You have to show the expenses or FRV of the home.  The minister should be providing this detail to you.

[RitaB]

As Margaret said, yes, the HA is subject to SE tax.  The pastor can exclude the lowest of these three for income tax purposes:

1)  The designated amount

2)  The actual housing expenses

3)  The fair rental value of the furnished home plus the actual cost of utilities.

These sites may be helpful:

https://www.clergytaxnet.com/expenses-can-used-justify-housing-allowance-exclusion/

https://www.guidestone.org/LearningCenter/Ministry/MinistersTaxGuide.aspx

[Linda Mathey]

Margaret and Rita,

Thank you both for your helpful responses.  I now understand how to enter it into ATX and I have contacted him for the actual expenses.  I cannot express how much it means to have everyone here as a resource.

Linda

 

[Dave T]

Linda,

As noted from Margaret and Rita the housing is subject to SE tax but so is his W-2 wages.

When computing the S/E tax. be sure and ask it there are any unreimbursed ministerial expenses such as mileage, meals, etc. These are not subject to S/E.

I use ATX but use an Excel spreadsheet to compute S/E.  

Hope this helps.

Dave T

 

[RitaB]

1 hour ago, Dave T said:

Linda,

As noted from Margaret and Rita the housing is subject to SE tax but so is his W-2 wages.

When computing the S/E tax. be sure and ask it there are any unreimbursed ministerial expenses such as mileage, meals, etc. These are not subject to S/E.

I use ATX but use an Excel spreadsheet to compute S/E.  

Hope this helps.

Dave T

 

I enter the clergy expenses on Line 2 of Sch SE. Right click, and there's a worksheet where you can enter expenses with a description for each item.  Enter them as negatives so you don't look stupid to the Preach.  Not saying I messed that up on the first clergy return of the year or anything.