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HOUSING ALLOWANCE FOR SELF-EMPLOYMENT TAX FOR MINISTER

Lloyd
Level 1

I noticed when i was preparing a tax return for a minister, that one of the options in the software was to apply the FICA to the housing or parsonage allowance only. My client did not have any of their W-2 income designated as housing allowance. However, from what I read all of the W-2 income should be taxed. Is this correct or am i reading it incorrectly.

Thanks for you help.

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jeffmcpa2010
Level 8

It is allowable for a church and a minister to have an agreement that a portion of the compensation is designated for housing costs.  

With the Ministers that I have worked with over the years, this was always required to be done in ADVANCE...and documented in writing in the contract or some other agreement. (That is the way I have asked for it to be done). IE Beginning June 1, $1500 of the compensation to John J Pastor shall be considered as allowance for housing costs.....or some similar language that makes you comfortable.

The Actual Housing costs must be tracked by the Minister. (Rent or Mortgage payment, taxes, insurance, utilities, maintenance and repairs, etc.) If the actual costs are less than the allowance the difference is taxed (for income tax). The amount of actual expenses allow that amount of the Housing Allowance to be excluded from income tax.

The Housing allowance is included for Social Security and Medicare tax.

Here is an IRS page on the subject.

https://www.irs.gov/faqs/interest-dividends-other-types-of-income/ministers-compensation-housing-all...

 

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qbteachmt
Level 15

Just because there is a provision doesn't mean it applies to everyone's circumstances.

Your topic's title refers to SE (SECA) but your text for the W2 refers to FICA. This can be a 100% employee, with no housing or parsonage allowance. And there could be self-employment earnings that do not relate to the church employment position at all.

Everyone has a different scenario.

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