Pastor W2 and Housing allowance

by Ralph
(Virginia)

OK, long post. Our Pastor makes 35k annually. Has 15k in housing allowance. We withheld no federal or state tax. We withheld his portion of SST (4.2% for 2012) and reported in box 4. We withheld his portion of Medicare (1.45%) and reported in box 6.


So his W2 that I filed looks like this
Box 1 35k
Box 2 0.00
Box 3 35k
Box 4 1470
Box 5 35k
Box 6 508
Box 7-12d 0.00
Box 13 Statutory Employee Checked
Box 14 15k

Is this correct? I have already issued the W2 and done the W3. Do I need to do a W2c and W3c? If so, what should it look like? Also, can you cite where your info is coming from?

Thanks!

Comments for Pastor W2 and Housing allowance

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Feb 08, 2013
Pastor W-2 and Housing Allowance
by: Anonymous in NC

One question before I give more thought to this. Is the $15,000 housing allowance a cash payment in addition to the salary of $35,000. The way your question is worded, I am only assuming that it is. Thank you

Feb 08, 2013
Response
by: Ralph

No the 15K is a part of his 35K Salary

Feb 08, 2013
Pastor W2 and Housing allowance
by: Ken

I believe your first mistake is reporting $35K as income and then $15K as housing. The IRS will expect that you have paid $50 to you pastor.

The Housing should not be included the salary box. It is the responsibility of the individual to add to the salary any amount of Housing not shown to the IRS as used as Housing, to the amount of Salary.

Feb 08, 2013
Pastor W-2 and Housing Allowance
by: Anonymous in NC

Pastors are treated like regular employees for the church, so filing a W-2 was correct. They have the wonderful benefit of excludable income for the housing allowance. So the reportable income for this pastor is $20,000 instead of $35,000 ($35,000-$15,000=$20,000, the excludable housing allowance).

For Social Security tax purposes they are treated special as well. They calculate that like a self-employeed person. That is, they pay their own SS taxes through quarterly payments by the Estimated Tax plan along with there federal estimated income taxes. The minister should have already estimated income taxes and should have been paying those all along. If he didn't know anything about this, he/she could just pay one payment this time and do the estimation method next year--there may be a small penalty for not doing it this year though. The SS percentage is multiplied by $35,000 (SS income base) in this case, because the minister must add the housing allowance back for figuring his SS taxes. The minister will use form 1040 and file a Self-Employment Tax Schedule. He may have interest on a mortgage and property taxes in his housing expenses, if he does those can further reduce his taxable income--you do not have to worry about this of couse as you correct the W-2 and 3 forms for the church.

Sounds like he didn't send this in on a quarterly bases, so when he does his taxes on the SS part, he will applied the amounts already withheld and sent in by the church for him to get his actual SS tax calculation or bill.

You will need to File a W-2 correction and transmittal form (W-3).

I think the only question that remains is the churches payment for what you said was its share of the pastors SS taxes. The Admin. Council will have to decide how to handle that, since they were legally not responsible for it in the first place. They could apply for a refund to put back in the church treasury, or they could decide to pay half of the pastor's SS and count it as a Salary benefit. If an extra salary benefit route is taken, then it would need to be added as extra income on line one of the W-2--making that total ($20,000 + whatever the church has paid for the Social Security tax already). Hope this helps.

Feb 08, 2013
Pastor W-2 and Housing allowance
by: Anonymous in NC

Ken is right on the possibility of adding any unused housing allowance back to taxable income on his 1040 form-when he actual fills out his tax returns. The pastor ends up at that point of only being able to exclude from his taxable income, the lesser of: (1) housing allowance, $15,000 (2) His actual expenses for providing his own housing (mortgage interest, real estate taxes, house insurance, etc., or (3) If a parsonage is provided, the fair market rental value of the parsonage, plus furnishing and utilities. This is very complicated for someone without at least intermediate tax knowledge). See the house allowance tab on the left side of this web page for a lot of good details to pass along to your pastor. Sorry, but I answered a lot of things you didn't ask, but I wanted your pastor to get some details as well.
Good luck.

Feb 10, 2013
To anonymous
by: Ralph

Ok, I think it need to correct his w2 income to 20k and housing allowance still at 15k.

I have with held his portion of ss and paid them quarterly.

My real question is why does the church not owe ss tax and Medicare? We have been paying it for the last year and a half and it is a fairly substantial amount. How do I get it back and what argument and form would I use with the IRS?

Should he even get a W2 or should he get a 1099? Is he an employee or self employed? I am new to all this and have spent the last two years fixing things that the old treasurer did with the IRS. You have to drag any information out of them, and if you don't ask the right questions that won't tell you that you overpaid at all. Our pastor is brand new as well as this is his first church and time as a pastor. So we are learning together.

I appreciate all the advice.

Feb 10, 2013
Pastor W2 and Housing allowance
by: Ken

I might suggest that you purchase one or two publications to help with all your questions, except how to get money back from the IRS.

Hammer has a very expensive manual and Worth has a manual that explains how a Pastor is a 'dual status' person, pays SET not SS, and that a W2 should be issued not a 1099.

There is a lot of expert advise in those two books that will be invaluable to you.

Feb 12, 2013
Pastor W-2 and Housing Allowance
by: Anonymous in NC

Ken continues to have good advice about reading the two books. They will clear up the questions you have about qualifying ministers and how they are treated differently and the question on 1099 vs. W-2 etc.

You seem to be getting on track with the W-2 corrections though, if your minister does in fact qualify for a housing allowance. You would report the $20,000 taxable income in Box 1. You would put the amounts you withheld from his pay in the appropriate boxes for SS and medicare. The housing allowance exclusion could be reported in Box 14 for information purposes only--but the IRS regulation does not require that you have to report the $15,000 of housing allowance there. The church is only required to preapprove the housing allowance in the year before it is applied and used by your pastor. The pastor must use the allowance only for his/her housing expenses, but the church does not have to worry about that part.

If you submitted the churches payment for SS on the same form that you submitted the pastor's withheld part of SS (Form 941, I would guess?), then file a 941X to get a refund for that error. You can confirm all this with IRS by calling their toll-free number. Sorry, I don't remember that number at the present moment.

Feb 22, 2013
IRS toll free number for exempt org's
by: Sandi

IRS-#877-829-5500
If you don't want to purchase books, get the IRS pubs... start with 1828 and the 15 series (IRS.gov) you can download pdf's and also order through the mail...
They also have one on employee vs independent contractor:Pub 1779

also make sure you give the pastor this link so he does his taxes correctly: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Minister-Audit-Technique-Guide

I would suggest to him that he signs up for Vicki's site, so he can browse through all the info she has (left side) or go to the bottom and type in the search bar. :-)

Prayers!

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