Clergy and EIC taxes
by Art Shady
Most tax software companies do not know how to handle minister’s taxes. When you click on the minister's SE exemption due to filing form 4361, the Earned Income Credit (EIC) goes away and it should not.
I have been doing some study and I understand that non-employee income, such as housing allowances have been exempt from EIC earned income since 2001. (i.e., 2001 Act, supra note 1, section 303(i)(1) and IRC section32(c)(2)(A)(i)(Lexis 2002)(codifying 2001 Act section 303(b). Also see committee reports, Supra note 19, It is the same section that exempts military housing allowances from being included in income and thereby preventing their inclusion from exceeding the limits of the EIC.
In most software, if you don't check the box and override the SE tax entry on your 1040 then you can't e-file because you overrode something. According to my studies being exempt from SE tax should not stop one from claiming the EIC, it doesn't for military and they are governed by the same code as ministers. In fact, military have the election to choose whether they want their housing allowance included in the EIC calculation depending on what is most advantageous for them. I have to file schedule SE for non-ministry activities this year, but am exempt from social security taxes (4361). I do not have a housing allowance, but as a missionary am self-employed.
Should I not be able to pay SE taxes ONLY on my non-ministry income and still get the full EIC, and only pay SE taxes on my non-ministry activities?
Yes...as far as I know...there is no reason why you should not get EIC on your self-employed income including your ministry income. You may need to contact your software support and see if they can tell you how to get around this issue. If worse comes to worse, you might have to just print out your return and mail it in.
Hope this helps,
Church Accounting Package