W-2 Forms - Housing Allowance

[fbcacctg]

Hi,

Our church pays two pastors, and in their payroll items I have a housing alllowance item set up. For one pastor, the amount correctly reports on the W-2 form, however, for the other pastor the housing allowance amount showing up in box 14 is completely wrong. When I run various payroll reports, the amount for year 2010 housing allowances is correct, it's just not reporting correctly on one of the W-2's.
In the payroll Item Descriptions...I have it set up as "Tax Options" Housing allowance.

Thanks for your help!

Tom

[NeilZ]

Hi,

Our church pays two pastors, and in their payroll items I have a housing alllowance item set up. For one pastor, the amount correctly reports on the W-2 form, however, for the other pastor the housing allowance amount showing up in box 14 is completely wrong. When I run various payroll reports, the amount for year 2010 housing allowances is correct, it's just not reporting correctly on one of the W-2's.
In the payroll Item Descriptions...I have it set up as "Tax Options" Housing allowance.

Thanks for your help!

Tom

Housing allowance is only taxable for Federal tax if the allowance exceeds the average rental cost for your area, plus utilities. Its always taxable for SSI & Medicare, which in most cases is covered under the Self-Employment tax for ministers.

That said, you should be using the same 'payroll item' for both pastors, the only difference should be the housing allowance paid. If I remember right, early versions of v11 had an issue with this, but it was fixed in a subsequent Maintenance Release. I'd check to make sure that you're on the latest MR which is 12/07/10.

[fbcacctg]

I just need to clarify something regarding housing allowances. For our youth pastor...I am withholding SS & Medicare taxes from his paycheck. Does this mean I am supposed to be also withholding SS & Medicare taxes from his monthly housing allowance? I have not been doing this.
For example...his total salary package is made up of his salary amount and his housing allowance. I have never withheld any taxes from his housing portion. In the past, the church simply wrote him a check from accounts payable for his monthly housing. Starting in 2010, I set up a payroll item for "housing allowance", and have processed the monthly housing through payroll. But I have never withheld any taxes from it.
If in fact I am supposed to be withholding FICA taxes, I need to know.
Thanks.

[NeilZ]

I just need to clarify something regarding housing allowances. For our youth pastor...I am withholding SS & Medicare taxes from his paycheck. Does this mean I am supposed to be also withholding SS & Medicare taxes from his monthly housing allowance? I have not been doing this.
For example...his total salary package is made up of his salary amount and his housing allowance. I have never withheld any taxes from his housing portion. In the past, the church simply wrote him a check from accounts payable for his monthly housing. Starting in 2010, I set up a payroll item for "housing allowance", and have processed the monthly housing through payroll. But I have never withheld any taxes from it.
If in fact I am supposed to be withholding FICA taxes, I need to know.

First of all does he meet the definition of a minister as defined in IRS Pub 517, if not, then this is subject to FITW and FICA. I would definitely check with a tax accountant, perhaps there's someone in your congregation who can assist with this.

That said, ministers are subject to SECA, that is Self-Employment Taxes. That is his salary is subject to FITW, but not FICA. What many people do so that they don't get hit with a lump sum bill at tax time is have additional withholding taken out under their income tax withholding.

Under SECA, all the following items are classified as income: (taken from IRS Pub 517)

Amounts included in gross income. To figure your net earnings from self-employment (on
Schedule SE (Form 1040)), include in gross income:

1. Salaries and fees for your qualified services (discussed earlier),
2. Offerings you receive for marriages, baptisms, funerals, masses, etc.,
3. The value of meals and lodging provided to you, your spouse, and your dependents
for your employer’s convenience,
4. The fair rental value of a parsonage provided to you (including the cost of utilities
that are furnished) and the rental allowance (including an amount for payment of
utilities) paid to you, and
5. Any amount a church pays toward your income tax or SE tax, other than withholding
the amount from your salary. This amount is also subject to income tax.

Again, all I can do is pass on what I can find out in the IRS pubs because this is going to affect our income tax return this year, as this is my wife's first full year as the minister here. I would definitely check with a tax professional to get a fully informed answer.