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Clergy W-2

Camp1040
Level 10

I have a new client who is not an ordained minister but is a member of the clergy with a Deacon title, full time position with the church. The few clergy returns I have done in the past have an amount in Box 1 only on the W-2 and either a statement or housing allowance listed in box 14.

This W-2 has an amount in Box 1 and higher amounts in box 3 and 5 with no withholding for any amounts. TP states the box 3&5 amounts are his parsonage but his former prepared was only subjecting the amount in Box 1 to SE tax. 

I am preparing the return and reporting the box  3&5 amounts subject to SE tax, client is not happy believes only box 1 amount should be subject to SE tax.

Am I missing something? 

Thanks for the help.

 

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Accepted Solutions
qbteachmt
Level 15

I was thinking they/you overlooked this part:

"Exclusion of Rental Allowance and Fair Rental Value of a Parsonage

Ordained, commissioned, or licensed ministers of the gospel may be able to exclude from income tax the rental allowance or fair rental value of a parsonage that is provided to them as pay for their services."

A Deacon-employee likely doesn't qualify.

https://pastorswallet.com/who-is-eligible-for-the-clergy-housing-allowance/

 

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qbteachmt
Level 15

This should help:

https://www.irs.gov/publications/p517#en_US_2021_publink100033601

(replaced with a better link)

It seems they have been doing this incorrectly.

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Camp1040
Level 10

I had skimmed thru that pub in the past, and now rereading it appears that if the parsonage allowance is not stated in a document or in box 14 (I have always seen it in box 14 on other returns) the total amount is taxable. TP may need to get a corrected W-2 form.

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qbteachmt
Level 15

I was thinking they/you overlooked this part:

"Exclusion of Rental Allowance and Fair Rental Value of a Parsonage

Ordained, commissioned, or licensed ministers of the gospel may be able to exclude from income tax the rental allowance or fair rental value of a parsonage that is provided to them as pay for their services."

A Deacon-employee likely doesn't qualify.

https://pastorswallet.com/who-is-eligible-for-the-clergy-housing-allowance/

 

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Camp1040
Level 10

Very odd that the church put amounts in Boxes 3&5.

If the Deacon states he has a license or some other certification, I can see that the parsonage allowance and he calls it would not be subject to income tax, but he is insistent that the allowance is not subject to SE tax.

I'm not going to have the inmates run the asylum, but I need to do so more research.

His past preparer died, I ask if he received any honorarium for saying some nice words about him

 

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Camp1040
Level 10

@qbteachmt  There were some broad definitions in the last link you sent me, enough that I feel comfortable excluding the so called parsonage from income tax but including for SE tax.

Thanks 

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qbteachmt
Level 15

Good luck. I always hate being stuck between, "This is what we call it" and "Well, this is what the IRS calls it."

🙂

 

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BobKamman
Level 15

I would want to know what doggone kind of deacon he is. All I know is what Wikipedia tells me, “Major Christian churches, such as the Catholic Church, the Oriental Orthodox Churches, the Eastern Orthodox Church, the Scandinavian Lutheran Churches, the Methodist Churches, the Anglican Communion, and the Free Church of England, view the diaconate as an order of ministry.”

And what IRS tells me in Pub 517, “Most services you perform as a minister, priest, rabbi, etc., are ministerial services. These services include: • Performing sacerdotal functions; • Conducting religious worship; and • Controlling, conducting, and maintaining religious organizations (including the religious boards, societies, and other integral agencies of such organizations) that are under the authority of a religious body that is a church or denomination. You are considered to control, conduct, and maintain a religious organization if you direct, manage, or promote the organization's activities.

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Camp1040
Level 10

He does not perform sacerdotal functions, but almost most of the other functions. He gives sermons, so that must qualify as a preacher.

I'm still miffed about the entries in boxes 3&5 and the lack of notation in box 14.

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qbteachmt
Level 15

"I'm still miffed about the entries in boxes 3&5 and the lack of notation in box 14."

That's because, no matter which scenario we review, they did it wrong.

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