Housing Allowance is hurting me, I think

by Stacy
(orlando, fl)

My church allocated $20000. towards housing allowance for me, which is my whole salary.

It feels like I am paying more because of the self-employment tax on the $20000 then if they just made me a regular employee and took out their portion of social security/medicare and then I could pay my portion.

What am I missing? I thought housing allowance was going to help me?

Comments for Housing Allowance is hurting me, I think

Click here to add your own comments

Opting Out of SS Limited to ...
by: Vickey

That is the form you can request to opt out of social security ; however, you Must file the 4361 by the due date of the federal tax return for the second year in which a minister has net earnings of $400 or more.

If you miss that window, you cannot opt out.

Plus you cannot opt out just because you don’t want to pay SS taxes...it must be because of your religious belief.

Please see more on this page: https://www.freechurchaccounting.com/opt-out-of-social-security.html
HA and approved 4361
by: Anonymous

HA is not considered income for tax purposes but it is for Self Employment Tax purposes.

However, you can opt-out of SE with Form 4361. Per my 4361 from approval letter from the IRS, it says "you are approved.. for exemption from Self Employment Tax for Use by Ministers...."

You will not be building up any social security 'bank' though but if your salary is all considered accurate HA and you have an approved 4361, then I believe you are subject to almost no taxes.
Housing Allowance are for Qualifying Ministers
by: Vickey

Reply to the reader who asked why the minister that refuses a housing allowance would still have to pay self-employment tax on compensation:

Housing allowances are a tax benefit for qualifying ministers.

Qualifying ministers are "covered under the Self-Employment Contributions Act (SECA). This means the minister is exempt from social security and Medicare withholding, but the minister is responsible for paying self-employment tax on his or her net earnings from self-employment." (IRS excerpt)

So unless the minister has "opted out of Social Security" ...they will owe self employment taxes on their compensation.

One last thing, withholding and matching FICA is NOT an option for individuals the IRS classifies as ministers.

It is not a personal choice.

It is not a Board choice.

It is the law.
Why would they still have self-employment taxes?
by: Anonymous

When they asked if they could drop the housing allowance, you said that they not only would still have to pay self-employment taxes on everything but would also have to pay normal taxes on the amount that was previously HA. ?? If you are no longer taking a housing allowance, yes, you will have to pay federal (& state) taxes on the entire wages. But why would you still have to pay self-employment taxes? Once you no longer are taking a housing allowance, you should have your employer take FICA & Med out (& pay their employer portion)--just like all the rest of the church employees.
Can we get out of receiving Housing Allowance?
by: Vickey

Yes. talk to your Board about approving [all] of your compensation as taxable wages.

BUT be forewarned that the amount of your "prior" housing allowance ...now declared wages...will be subject to that same self-employment tax AND an additional income taxes as well.

So...can't see where it would "save" you money to have all of your income declared as "taxable" income?
Housing Allowance is hurting me
by: Anonymous

I also don't see an advantage on having the Housing Allowance. Since, we have had to pay every year. Can we get out of receiving Housing Allowance?
If you are a Minister, you CANNOT be treated like a Regular Employee
by: Vickey

The IRS consider ministers to have a dual employment status.

Which means ministers are considered an employee for federal income tax purposes and self-employed for Social Security and Medicare purposes. SO ...like self-employed individuals...they pay their own social security taxes.

Churches cannot treat ministers like "regular" employees. It is not a pick and choose thing.

So if you:

1. are licensed or ordained

2. administer the sacraments of the church (weddings, funerals, baptisms, and communion, etc...)

3. are considered a religious leader by the church

4. conduct religious worship

5. have management responsibilities in the church...

you are considered a minister and your church CANNOT withhold FICA (Social Security and Medicare) and they CANNOT match it.

You are under the SECA system ....not the FICA system.

Click on the SITE MAP at the top and read the pages in the "Minister" sections for more information.

Which does seem to put ministers at a slight disadvantage =(

But they do get a tax benefit that most "regular" employees cannot get...a housing allowance =)

A housing allowance is is simply a portion of a minister’s compensation that is designated in advance by the minister’s employing church as an allowance to help with housing costs.

It is beneficial for ministers because it is excluded from federal income tax. However, it is not exempt from the minister’s self-employment tax =(

To help figure how much SE tax and income tax you are going to owe There is a great withholding calculator for ministers on StartChurch's site:
https://www.startchurch.com/app/withholdings-calculator

Use it to figure how much tax you are going to owe and then either ask your church to withhold income tax for you (the extra withholding will cover your SE tax) or send in quarterly tax payments.

Again...please review my "minister" pages to learn more. Go to RESOURCES n the TOP menu and then to MINISTER TAXES.

Also, I have an ebook on Minister in my Church Accounting Package. Go to PACKAGES in the top menu and then CHURCH ACCOUNTING PACKAGE.

Click here to add your own comments

Join in and write your own page! It's easy to do. How? Simply click here to return to Housing Allowance.