Pastors tax liability.

by Mike Baldwin
(Iowa)

I'm a Youth Pastor trying yet again to get a grasp on my taxes. I'm paid 35,200 total a year and it breasks down as such. 13,200 for housing and 6,000 for medical leaving 16,000 in ministerial. I have witheheld from my check 15.3% percent and the church makes payments to the IRS from that. I was told by H and R that I have not paid enough in taxes that I'm still liable for more taxes. Can you help me to undestand? Mike

Comments for Pastors tax liability.

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Housing Allowance and SE Tax
by: Pastor's Wife

I am a pastor's wife, and we also have a home business. I do all our taxes myself. It has been a learning curve every year, but at least I know the person doing the taxes (me) understands clergy tax, and won't miss any benefits. I used to use the free online software, but between the clergy and the business taxes, I didn't qualify for free any longer. Since clergy taxes are unique, I have decided it is worth the time for me to do them myself. So, I have learned a lot, and continue learning.

The Housing Allowance is a great benefit to clergy. Here is why: All income, including the Housing/Parsonage Allowance (or Fair Rental Value of a parsonage) is subject to SE (Self-Employment) Tax. I saw 15.3% listed by other posters I think, but irs.gov says (in Pub 334) "For 2012, the SE tax rate on net earnings is 13.3% (10.4% social security tax plus 2.9% Medicare tax)." However, the portion of the housing allowance actually used for housing is NOT subject to regular income tax. Basically, it is as though you pay Social Security on it, but not income tax.

How do you figure out what you actually used for housing, though? I highly recommend trying to get a hold of Worth's Income Tax Guide for Ministers. I have the 2009 version, and haven't checked lately to see if a new one has been produced. Worth's is great for seeing how to maximize deductions without over-deducting or running the risk of an audit unnecessarily.

Here is the gist:
Housing costs include rent, utilities, furnishings, improvements, repairs, upkeep of the home and/or contents, insurance on the home and/or contents, real estate taxes and mortgage interest on the home (deducted for a second time in itemized deductions, allowed by IRS according to Worth), decorator items like curtains, sheets, paintings, and anything that maintains the home or its contents, like cleaning supplies for the home, light bulbs, gas for mower, lawn tools, and so on.

The DVD player is a housing/parsonage cost. The DVDs are not.

Maids, labor hired for maintenance such as lawn care, groceries, personal toiletries (Worth said not to include laundry soap or dish soap as a housing cost), paper products, things you wear, toys, bicycles, hobby items, computer software, and the personal portion of a cell phone used outside of the home are NOT allowable housing costs.

So, if it is for the home or its upkeep, it's housing. If it is for your recreation or for the upkeep of persons in the house, or if it is part of the disallowed list, don't count it as a housing cost.

Keep receipts. Keep a paper trail that shows that costs you cite are legitimate, and monies you spent were spent on those costs. If you're audited, you'll have them.

Pub 517 has worksheets to help you figure your deductions, including the percentage of tax-free income, if you ever do your own taxes or want to make sure they turn out accurate. They're worth a look. Hope some of this helps someone!
Pay stub question?
by: Anonymous in NC

Maybe the bank would accept a W-2 form (copy) as proof of minister's pay or have the minister ask the bank if a copy of last year's Income tax filing would work?
Pay Stub
by: Tony Kim

I'm financial officer in my church, but I'm not an accountant nor fluent in tax law. My pastor is trying to re-fi his home and his mortgage company is requesting pay stub or proof of pay from church. I have send 3 letters explaining his stipend, house allowance, car insurance allowance, gas usage, and cell phone usage allowance. They keep asking for pay stub. What do you think might be acceptable to mortgage company? Is there a form or format for minister's pay-stub?
Pastor's tax liability
by: Anonymous in NC

Ministers are treated as employees of the church for income tax purposes and they are treated as self-employed for Social Security tax purposes. So, you should be paying 15.3% for Social Security and Medicare taxes on $35,200 ($35,200 X 15.3% = $5385.60). The housing allowance you get must be added back to your other income to arrive at the $35,200 amount in this calculation. You should send this in to the Federal government on a quarterly basis using estimated tax payments.

You will be paying federal income tax and Iowa State income tax on the $22,000 amount. However, you must spend all of the $13,200 on housing related expenses or any amount of that not spent that way would have to be added back to the $22,000. From what you have said $3366 should be in box 2 of your W-2 form to be applied to your federal income taxes owed for 2012. You should probably be doing an itemized tax return (especially if you are buying your own home)to get the lowest possible tax liability. The $3366 should more than enough to cover your federal income tax liability, but H & R Block has probably filed a Self Employment tax form to be mailed with your 1040; I suspect that is the extra taxes they are talking about. Hopefully there were also withholdings for your Iowa income taxes on the W-2 form as well. Hope this helps.
Answer to your question.
by: Anonymous

On my W-2 the federal tax withholdings are listed in box #2 and eqaul 15.3% of my income after my housing allowance. My medical allowance is included in the amount taxed and listed with all my earings minus the housing in box 1. As far as the housing allowance all I know is that yes I do meet the requirements for being a minister. Thanks
Pastor's tax liability
by: Anonymous in NC

What does your W-2 from the church say for Federal tax withholdings. How is the 15.3% that you have withheld for taxes listed on your W-2? Do you really qualify for a housing allowance as a youth minister (by the IRS definition for a minister)? The medical deductions? How do they fit as far as being taxable? What is listed in Box 1 of your W-2?
Read all that already.
by: Anonymous

I added a post because I've already read all that stuff and what it doesn't explain is exactly how much tax percentage wise. Like, how much FICA and how much SE tax in percents. Thanks though.
Your question
by: Anonymous in NC

You need to read all the information to the left which you can find under the heading "Clergy/Minister". If you then still have questions, please post again.

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