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Minister's W-2


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A minister for whom I work received her W-2 from the church's new accountant. Their former accountant now deceased did not indicate any Social Security or Medicare tax withheld from her W-2 but the new outfit does indicating amounts in boxes 3.4,5 and 6 of the form. I have calculated Earned Income Credits for all my over 65 clients who have jobs and qualify for the credit this year. I can find no reason not to compute one for this client as the church has evidently paid Social Security and Medicare tax on this wage income. What do you think. The resulting credit is some $248 dollars. 

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I don't have a problem with EIC for a senior citizen under the new regs. I do have a problem with SS/Medicare withholding for clergy. Clergy are hybrid employees, employees for income tax purposes and self-employed for SS/Medicare AKA Self-Employment Tax purposes. Their returns typically include Schedules C and SE. This isn't my niche, so ask around and do your research.

https://www.irs.gov/businesses/small-businesses-self-employed/members-of-the-clergy

https://www.irs.gov/taxtopics/tc417

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Normally I add the W-2 wage AND the housing allowance together minus allowable expense and place it on Form SE thus insuring the payment of required Social Security tax. This year I have excluded the W-2 wage since they evidently withheld these taxes already which is a new wrinkle. It is a small amount and likely would cause no problem. I simply have never seen this handled in this manner and really wonder if the new outfit was up to snuff on this but I am not going to call at this late date and inquire.

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I was shaking my head at this until I received the documents today from a clergy client of 10 years (other clergy clients  for many other years so not new at this).  She was transferred to another church and SS and MC were withheld.  Nearly spit out my coffee!  I'm so glad they are already extended because I don't think this will be pretty.  Same denomination all this time, moved 5 times, first time this happened.  Sigh...

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I'm thinking it's whoever processes payroll at the new church she moved to in July - could be in-house our outsourced, don't know.  I was taken aback when I wrote to have this resolved and husband (managing the tax documents) said minister wife didn't understand what I was saying.  I wrote the basics and included links for the exemption, 4361, and revocation of exemption, 2031, and reminded them that for 10 years and through all the moves to different churches, none withheld SS and MC.  Waiting for reply but said I won't prepare the return until I get a corrected W-2 or her affirmation of revocation.  I just don't believe that all the other churches were in error.

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Nothing to do with 4361/2031. The employing church can NOT - by law -  withhold SS/Medicare. At the clergy person's request on Form W-4, the church can withhold any amount of FIT/SIT, so many clergy w/h enough FIT to cover their ultimate SE tax as well as FIT, others make quarterly payments or increase spouse's w/h.

Worth has a great book. Geisler has resources. Some of the large payroll companies have a clergy division or clergy specialist. There are preparers whose niche is clergy taxes.

https://www.irs.gov/pub/irs-pdf/p517.pdf

And, from Clergy Financial Resources (https://www.clergyfinancial.com/:

"Ministers are required to pay Self-Employment (SECA) tax rather than being subject to the 7.65% Social Security and Medicare (FICA) tax withholding (IRC 3121 (b)(8)(A)). Therefore, Social Security and Medicare (FICA) taxes should not be withheld from the ministers pay. The Social Security and Medicare boxes on the ministers W-2 Form should then be left blank (boxes 3, 4, 5 and 6). Instead, ministers are responsible for paying 15.3% Self-Employment (SECA) tax through estimated payments.

Self Employed Contributions Act Tax (SECA Tax) was first imposed by the SEC Act of 1954.

Responsible persons can be held personally liable by the IRS for incorrect filings and failure to remit Federal income tax and FICA tax withholdings."

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Thanks, Lion, for the details.  I've had several clergy as clients and was church treasurer managing payroll all that time, too, so have first hand experience there.  I have been a subscriber of Church and Clergy Tax Guide for about 15 years and pretty much know this which is why I alerted the client to the problem.  I did the research and it is possible for a clergy person to revoke the exemption with 2031.  And not all clergy choose to be exempt and do not file 4361.  It is, in my opinion, that this minister filed 4361 upon ordination per the denomination and hasn't given it a second thought since then.  Until now.  I believe the person responsible for this perhaps gave erroneous or no instructions to ADP which processed the W-2.  Although I kind of blame ADP a bit because it does have housing allowance in Box 14.  I guess little to no quality control.

It will be sorted out but I had to allow for the possibility of revocation since it does exist.  I'm not finishing this return without a corrected W-2 (most likely) or confirmation of revocation (highly doubtful).  And I did recommend that she consult her local/state/national denomination even to where she was ordained. 

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Needless to say I took the SAGE advice of my fellow forum members and contacted the minister who is supposedly getting this fixed. Until she does she will be on extension. 😊 I can only imagine what Margaret's wall would look like if she had not restrained herself. 

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Most main stream denominations advise their newly ordained to NOT opt out of SS. But those who have a conscientious objection to public assistance can certainly opt out. However, that does NOT change their W-2 in any way. Nothing in Boxes 3, 4, 5, and 6. What it changes is NO Schedule SE on their pay for sacerdotal activities only, for those who opt out. Those who object to public assistance will forego receiving Social Security benefits, Medicare, Medicaid, EIP, RRC, EIC, or any federal, state, or local public assistance.

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