clergy tax return - previously prepared by attorney

[schirallicpa]

I'm not sure entirely what I'm not getting here.

Priest receives W-2 from diocese. No SS or Med income/ tax. Only Fed and State income and w/h tax.

Also receives stipends. Lives on property provided by diocese. Church pays utilities and food. Has some mileage expense, and misc supplies.

Initially, I put w-2 on line 7, threw the stipends on Sch C and figured he must be filing exempt for self-employemnt/ Fica tax since W-2 showed no SS wage or Med wage. 2106 for mileage and supplies.

Then I get looking at the one the atty prepared last year. He put the wages on sch C and calculated the self-employment tax from sch c income after deducting mileage from wages.

Hmmmm.....I guess he considered him a statutory employee....?..... Is that how it's supposed to go?

And I see nothing in regard to housing allowance on the previous return. But thats besides the point right now. I'm trying to figure out how to report this.

Any thoughts. Thanks.

[J. Ron]

Most clergy are dual status for tax purposes. They are subject to income tax on their salaries, but are self-employed for SS and Medicare purposes. Enter the salary on the W-2 and the withheld taxes in their proper place. Then go to the special clergy worksheets and enter the other information in their proper places. The housing, utilities, etc. will calculate on those forms and flow through to the Schedule SE. I am using TRX this year and our figures flow a little differently from ATX. If you follow the form everything should flow through correctly.

[schirallicpa]

wow - i liked my results better the first way I did it:)

thank you for your help. It works easy enough, but I just didn't know enough to have it open. Thanks

[Jack from Ohio]

All his income in box one of the W-2 is subject to income tax and SE. It is properly listed on line 7 of 1040, with it going on page 2 long form SE. All housing allowance is subject to SE. His other stipends are the only thing to go on Schedule C with appropriate expenses for those incomes.

Any other "church related" expenses are 2106 deductions.

Any housing allowance above the actual housing expenses is subject to income tax as well. Using the clergy worksheet will take care of this in ATX.

Using ATX, when you enter the W-2, use the drop down box for special types and choose clergy. Program will flow the wages to SE and open the clergy worksheet.

The church should NOT be withholding SS or Medicare. They may withhold Fed tax if the pastor chooses.

The church is required to report to the pastor the amount of housing allowance he has been paid, but does not need to list it on the W-2. Pastor is required to report it on his return.

[schirallicpa]

Thank you Jack!!

[RitaB]

Don't forget about the Housing Allowance. It is subject to SS/MC tax. Any excess is also subject to FiT.

As J. Ron said, the clergy worksheets are your best friend there.

[TAXMAN]

What do you do when the priest took a vow of poverty at time of ordination. Did not file anything with IRS. Is required to contribute salary back to church. Gets a 1099m for his services. Shares a church owned house with other priest. At this point I am lost. Anybody got a take on this. Priest doesn't speak good English and I have to talk to translater.

[MAMalody]

Don't forget that you are able to deduct any unreimbursed professional expenses from the SE income prior to the computation of the SE tax. Also, don't forget the IRC 265 adjustment to the 2106 expenses. The ATX 1040 Clergy Worksheet 3 and 4 should do this for you if the figures are entered correctly on the F2106 and Worksheet 1.

My guess is that the meals he was provided would be part of his compensation.

In reference to the vow of poverty; the earnings are tax free to the individual because the earnings are considered the income of the religious order. If the 1099 is for services performed for an employer outside the religous order or work that is no required by or done on behalf of the order, then that income would be taxable. You would be able to take a charitable contribution for the amount surrendered to the order.