parsonage

[michaelmars]

all you experts in the clergy, I just got my first questions on this in over 30 years.   Husband is getting a job teaching and they told him the pay qualifies as parsonage.  I don't know the ins and outs of fica on this money and does it qualify as pay for the couple to claim the child care credit.  Last year he was a student so they couldn't claim the credit for their baby.  The pay will be about $1k per month.

[Gail in Virginia]

I'm not sure I understand, Michael.  Are you saying that 100% of his salary qualifies as Housing Allowance (Parsonage exclusion)?  Subject, of course, to him being able to show costs for housing of that much?

[MAMalody]

If you are asking is a parsonage allowance considered earned income for Child and Dependent Care Credit percentages, only the portion that is in excess required to be reported on line 7 of Form 1040 would be considered earned income for the credit in question.

[michaelmars]

I Know nothing about parsonage.  in this case his pay will be less than his rent.  I don't know if the pay goes on line 7 and gets excluded somewhere else or if it goes on 7 and a credit is given.  If on line 7 and since it will be less than his rent, does he lose the dependent care credit?  I am going to give this return to someone else but I would like to have a basic understanding.  This is for my Admin's son.

[Lion EA]

We have a couple of clergy experts on here, so hopefully they will jump in.

 

His W-2 should have only pay taxable for income tax purposes in Box 1, with employer or pension giving him a letter or put his housing allowance in Box 14 so you know the amount to add to his Form SE.  (You probably know it's LOWEST of amount designated in advance, FRV furnished, and actual amount spent.)  Also, no Boxes 3,4,5, or 6 for active clergy.  Not sure if clergy have any special conditions when qualifying for various credits.

 

If this will be ongoing for your continuing Admin's son, Richard R. Hammer writes an excellent book on clergy taxation, the son's denomination probably has great resources available, and William F. Geisler out of San Anselmo, CA, is an expert.

[MAMalody]

I Know nothing about parsonage.  in this case his pay will be less than his rent.  I don't know if the pay goes on line 7 and gets excluded somewhere else or if it goes on 7 and a credit is given.  If on line 7 and since it will be less than his rent, does he lose the dependent care credit?  I am going to give this return to someone else but I would like to have a basic understanding.  This is for my Admin's son.

 

Here's how it works.  The amount that qualifies as non-taxable housing allowance is the smaller of the amount spent, the amount designated (it must be designated prior to issuance) or the fair rental value of the parsonage/housing allowance.  The church can report the housing allowance on the W-2.  If it chooses to do this is should be listed in box 14. The amount of the housing allowance that is non-taxable cannot be used in the computation of the Child and Dependent Care Credit. Unless the pastor is exempt, the housing allowance is subject to SE tax. If the amount paid by the church for housing allowance is greater than the expenses or the fair rental value, that excess is also subject to income tax.  It would be reported on line 7 of the 1040 along with his other wages.  You would indicate the amount of the excess and indicate Excess Housing Allowance to the left of line 7. I don't know if I would call myself an expert, however, I only do clergy tax returns.  I would be  happy to try to help on this forum or you can e-mail me at [email protected].  Be advised that if you do e-mail me you will loose the benefit of peer review that this board makes available.

[michaelmars]

I GOT it now....thanks for the great answers.  I can now explain how it works.