Contributed by: PhillipB, FreeTaxUSA Agent, Tax Pro
The income, Social Security, and Medicare tax situation for members of the clergy is very different from the tax situation of average employees. Members of the clergy have the following major differences:
- Clergy wages are exempt from Social Security and Medicare tax withholding. This doesn’t mean that they do not pay those taxes. Clergy wages are subject to self-employment tax even though (in most cases) they are not self-employed.
- Income from the cost of housing provided by the church may be excluded from taxable income. However, the amount is still included in income for the self-employment tax calculation.
- In some cases, a minister can request an exemption to forms of public insurance if the request is based off religious or conscientious reasons. The due date for such a request is the tax return deadline on the second year with clergy self-employment income over $400.
Due to these differences, clergy members have unique looking W-2s.
- The box 1 income amount will show total pay minus amounts for the housing allowance income and elective deferrals such as retirement contributions.
- The boxes for Social Security and Medicare income and taxes withheld will all be blank.
- Box 14 will usually show all the pertinent information regarding the housing (or parsonage) allowance income that needs to be included in the self-employment tax calculation.
If there is Social Security or Medicare income or tax on your W-2, our software doesn’t support the calculation for clergy self-employment taxes. If this happens to you, it may mean a portion of the year you were a non-clergy church employee and a portion of the year you were a clergy employee.
You may want to ask the church’s HR department if they can issue two separate W-2s for the different kinds of church employment. If the W-2 cannot be separated or corrected, you may need to file using another tax software or with a local tax professional.
How to report the income in FreeTaxUSA
Follow this menu path: Income > Wages (W-2) > +Add a W-2 for the clergy member > Choose how you want to enter the W-2. You can manually enter the W-2, upload a PDF from your computer, or take a picture of the W-2. Select Continue. Make sure the W-2 in the software is entered exactly as it appears on physical W-2. Select Save and Continue.
