Ministerial F.A.Q.

Many members of the clergy frequently ask us very similar questions. Here are just a few common questions that are asked:

1. Do Churches have to File Quarterly reports for their Ministers?

2. Who is eligible to declare a housing allowance?

3. When do I need to declare a housing allowance?

4. As a minister, am I suppose to get a W-2 or a 1099 after the end of the year?

5. As an ordained minister performing sacrodotal duties, I noticed my W-2 had $ amounts in boxes 3,4,5,6. Is this OK?

6. As a minister, do I need to make quarterly tax payments to the IRS?

7. If I want your company to prepare my taxes, how can I get my information to you? How will I get the information back?

8. Since I am out of state or out of the country, how do you finalize my tax return?

9. Does it matter what my denomination is in determining whether I am a minister or not?

10. Why should I use National Church and Clergy to prepare my taxes when I have CPA's and other tax preparers in my own church?

11. What should I do if I feel my paycheck or W-2 is filled out improperly?

12. What If I overstated my housing allowance and I did not use it all?

13. When can I opt out of Social Security if I decide to do so?

14. Are my occasional Love Offerings considered taxable income? Do I need to report this income?

15. My previous tax returns are wrong. Can I go back and fix them?

16. What are four special tax rules "ministers" are eligible for.

17. A minister receives a salary plus a housing allowance. Is the housing allowance considered income?

18. Are housing allowances taxable to ministers?

19. For a minister, is the housing allowance included in box 1 with wages?

20. As a minister, what do I do if my household expenses are greater than my housing allowance?

21. As a minister, what do I do if my household expenses are less than my housing allowance?

22. Are all ministers treated as self-employed for social security purposes?

23. I am a licensed minister. What are the procedures to follow to file for Exemption from (Self Employment ) Social Security Taxes?

24. As a minister, I previously elected, and was approved for, an exemption from social security coverage. Can I revoke this election?

1. If the Minister asks the church to pay the IRS on his behalf or the church has employees other than Licensed, Commissioned or Ordained ministers, then the Answer is YES. Call for more information.

2. Ordained, commissioned, or licensed ministers of the gospel may be able to exclude actual housing expenses, the rental allowance, or fair rental value of a parsonage or that is provided to them as pay for their services. Check with us for more detailed information.

3. Housing allowances need to be determined by year end for the next year. These determinations should be in the church's board meeting minutes.

4. A W-2 is recommended by the IRS because, in most cases, the pastor is considered an employee of the church. Ministers are considered a dual status employee though. If you are a travelling evangelist, you may receive a 1099. There are more circumstances also. For more information, please contact our office.

5. NO! For more information refer to IRS publication 517 or contact our office.

6. The church may send them in as a courtesy, or you may send them in unless you have enough credits or deductions to justify no tax will be owed. The IRS will assess penalties for failure to file these reports. For more information contact our office.

7. Our company will work with you on an individual basis. Typically we have you mail us all your information, and we can mail it back when completed. We also have Internet capabilities for many situations. Contact us directly for more information.

8. Our Company has means of transmitting your final return by a secure site on the internet. Certain documents may need signatures which we can obtain, or a power of attorney for tax purposes only can be obtained very easily. Contact us for additional information.

9. Your religious denomination has no determining factor as to whether you are considered a minister. Refer to IRS Publication 517 to determine your qualifications and special rules of a minister. Contact us for additional information.

10. Our firm continually amends tax returns each year that have been prepared by other CPA's and tax return mills. Our experience has proved to more than pay for our services by having them done correctly the first time. You will have peace of mind knowing that a company who deals with similar situations to yours prepared your return.

11. Your payroll administrator needs to be contacted immediately. If you contine to have problems, you can contact the IRS Martinsburg Computing Center at 1-866-455-7438. This is the IRS headquarters where all W-2's are processed. You can also contact our office if you need assistance in fixing them.

12. Any unused housing allowance needs to be added back into your income. For more information contact our office.

13. There are specific rules and times this can happen. Once you become Commissioned, Licensed or Ordained you can opt out at that time. An IRS application, Form 4361, will need to be completed. There may be additional exceptions of which you may contact our office for more information on this.

14. Yes,...

Churches sometimes collect "love offerings" from the congregation for a particular pastor, intern, or other staff member in recognition of services rendered. Such offerings must be reported as taxable income. If the recipient is an employee, the love offering should be added to his or her W-2 form. If the recipient is not an employee, then the income should be reported on a 1099-MISC if $600 or more. No matter what the amount of a love offering is, It should be reported as earnings.

15. Yes, But refunds can be received only up to three years back. NCC can assist you in properly preparing them.

16.
1) the housing allowance and parsonage exclusions
2) exemption from Social Security coverage (if several conditions are met)
3) self-employed status for Social Security purposes (if not exempt)
4) exemption from income tax withholding

17.

A minister's housing allowance, sometimes called a parsonage allowance or a rental allowance, is excludable from gross income for income tax purposes, but not for self-employment tax purposes. If you are a minister and receive as part of your pay for your services as a minister an amount officially designated as a rental allowance, you can exclude the allowance from income if the amount is used to provide or rent a home. However, the exclusion is limited to the lesser of the fair market rental value (including furnishing, utilities, garage, etc.) the amount officially designated (in advance of payment) as a rental or housing allowance, or the actual amount used to provide a home, and cannot exceed what is reasonable pay for your services. If housing is furnished to you by your congregation as pay for your services as a minister, the exclusion cannot be more than what is reasonable pay for your services, and is limited to the fair market rental value (including furnishings, utilities, garage, etc.) of the home. If you own your home and you receive a housing allowance as part of your pay, for your services as a minister, the exclusion cannot be more than the smaller of the following: • the amount actually used to provide a home, • the amount officially designated (in advance of payment) as a rental or housing allowance, or • the fair market rental value of the home, including furnishings, utilities, garage, etc.

References: • Publication 517 , Social Security and Other Information for the Members of the Clergy and Religious Workers

• Tax Topic 417 , Earnings for clergy

18.

A housing allowance paid to you as part of your salary is excluded from gross income to the extent you use it, in the year received, to provide a home or to pay utilities for a home with which you are provided. The amount of the housing allowance that you can exclude from your income cannot be more than the reasonable compensation for your services as a minister. The church or organization that employs you must officially designate the payment as a housing allowance before the payment is made. A definite amount must be designated; the amount of the housing allowance cannot be determined at a later date. Other provisions may apply. While not subject to income tax, the housing allowance will included in income for self-employment tax purposes. However, a minister may request exemption from self-employment tax. For additional information on housing allowances, refer to Chapter 6 of Publication 17, Your Federal Income Tax or Publication 517, Social Security and Other Information for the Members of the Clergy and Religious Workers. For information on earnings for clergy, refer to Tax Topic 417.

References: • Publication 17 , Your Federal Income Tax

• Tax Topic 417 , Earnings for clergy

19. No.

The church would enter the amount of any parsonage allowance and any utilities allowance in box 14 of Form W-2. If the housing allowance exceeds the minister's qualified expenses, the minister would add the excess to the wage amount and enter the sum on line 7 of Form 1040.

References: • Instructions for Form W-2 and W-3

• Publication 517 Information for the Members of the Clergy and Religious Workers

• Tax Topic 417 Earnings for clergy

20.

Usually, the total of household expenses is only used as a limit to the amount of excludable parsonage allowance (for an ordained, commissioned, or licensed minister). A parsonage allowance or the fair rental value of a parsonage provided as pay for a minister's services is excluded from gross income for income tax purposes only, not for the computation of self-employment tax. While the excess cannot be deducted, it is helpful to prepare a worksheet like the one labeled "Attachment 1," shown as part of the comprehensive example at the end of Publication 517, Social Security and Other Information for the Members of the Clergy and Religious Workers. This worksheet, when completed, reflects the amount of income you've received, your qualified expenses, and your tax-free (excluded) income. If your expenses exceeded the amount of your parsonage allowance, your allowance will be fully excludable for income tax purpose provided the amount would not exceed an amount which represented reasonable pay for your services as a minister.

References: • Publication 517 Information for the Members of the Clergy and Religious Workers

• Tax Topic 417 , Earnings for clergy

21.

To the extent that your household expenses are less than your parsonage allowance, your allowance is taxable income for income tax purposes. If you receive as a portion of your pay for your services as a minister an amount officially designated as a rental allowance, you can exclude the allowance if the amount is used to provide or rent a home. However, the exclusion is limited to the lesser of the fair market rental value (including furnishings, utilities, garage, etc.), the amount officially designated as a rental or housing allowance (prior to payment), or the actual amount used to provide a home, and cannot exceed what is reasonable pay for your services. If housing is furnished to you by your congregation as pay for your services as a minister, the exclusion cannot be more than what is reasonable pay for your services, and is limited to the fair market rental value ( including furnishings, utilities, garage, etc.) of the home. If you own your home and you receive a housing allowance as part of your pay, for your services as a minister the exclusion cannot be more than the smaller of the following: • the amount actually used to provide a home, • the amount officially designated as a rental or housing allowance, or • the fair market rental value of the home, including furnishings, utilities, garage, etc. • an amount which represents reasonable pay for your services as a minister. The amount of the allowance that cannot be excluded should be entered with your wages on line 7 of Form 1040, U.S. Individual Income Tax Return.

References: • Publication 517 , Social Security and Other Information for the Members of the Clergy and

Religious Workers

• Tax Topic 417 , Earnings for clergy

22. Services that a minister performs in the exercise of his or her ministry are covered under the Self-Employment Contributions Act (SECA). That means they are exempt from Social Security and Medicare withholding, but they are responsible for paying self-employment tax on their net earnings from self-employment. There are some members of religious orders, ministers, and Christian Science practitioners who have requested and been granted exemption from self-employment tax. There are also members of religious orders who have taken a vow of poverty and ministers who are covered solely by the social security laws of another country under a social security agreement between the United States and that other country. References: • Publication 517, Social Security and Other Information for the Members of the Clergy and Religious Workers • Tax Topic 417, Earnings for clergy

23.

The procedures to request an exemption from self-employment tax are listed in Publication 517, Social Security and Other Information for the Members of the Clergy and Religious Workers.

References: • Publication 517 , Social Security and other Information for the Members of the Clergy and Religious Workers

• Form 4361 (PDF), Application for Exemption from Self-Employment Tax for Use by Ministers, Members of Religious Orders, and Christian Science Practitioners

• Tax Topic 417 , Earnings for clergy

24. These exemptions are generally irrevocable. To make this election, you must have completed Form 2031, Revocation of Exemption Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, by April 15, 2002. This period is extended beyond April 15, 2002, if you have a valid extension to file your 2001 Federal Income Tax Return. See the references below for additional information. References: • Form 2031 (PDF), Revocations of Exemption from Self-Employment Tax for Use by Ministers, Members of Religious Orders, and Christian Science Practitioners • Publication 517, Social Security and Other Information for the Members of the Clergy and Religious Workers