Payroll - pastor housing exclusion

[SunsetTreas]

Our pastor gets to claim an income deduction that is called "housing exclusion" which goes into Box 14 on the W-2. However, I cannot figure out how to have this calculate into his taxable wages for the 941 report. It is not real money paid to anyone... just a reduction of reportable income. So far I have just manually edited his income line on the 941 reports, and I'd sure prefer that PC do it for me in 2026!

[NeilZ]

Our pastor gets to claim an income deduction that is called "housing exclusion" which goes into Box 14 on the W-2. However, I cannot figure out how to have this calculate into his taxable wages for the 941 report. It is not real money paid to anyone... just a reduction of reportable income. So far I have just manually edited his income line on the 941 reports, and I'd sure prefer that PC do it for me in 2026!

Housing Allowance, which is the 'official' term for this, is NOT taxable for Income Tax. It is for SECA taxes, the Self-Employed tax that covers Social Security & Medicare.

This does NOT get reflected on the 941, but DOES get entered in the W-2 Box #14.

I'm not sure who told you that this is taxable, as it is not. This is covered in IRS Publication 1828, on page 22
https://www.irs.gov/pub/irs-pdf/p1828.pdf

Also see: https://www.irs.gov/businesses/small-bu ... the-clergy
https://www.irs.gov/taxtopics/tc417
https://www.irs.gov/forms-pubs/about-publication-517

Many ministers do not even have taxes withheld. What I do is offer the pastor that choice, to either have taxes taken out as withholding, or they pay the quarterly estimated tax themselves.

The choice is easy, the taxes come out every paycheck, and the minister does not have to worry about it. I also have them take out additional funds per paycheck as withholding to allow for the SECA taxes for Social Security & Medicare.

If the pastor elects to have a certain amount set aside as Housing, that should be spelled out, and included as an INCOME item with the remainder of the salary as the taxable salary. Again, Housing Allowance is NOT taxable for FICA.