The #1 Tax Mistake for Pastors & Clergy

[@raimiebatemanthm2400]

If you’re a minister and opted out of SS and Medicare, then you do not have to pay the self-employment amount on the MHA. ;)

[@IntentionalFinance101]

That is correct.

[@katelynnb1720]

Is taking a housing allowance always beneficial, or are there times when opting out is better?

[@IntentionalFinance101]

If you're clergy status, taking the housing allowance won't hurt you. There's times where it might not help, but it shouldn't ever hurt. It is going to reduce your taxable income and unless your income tax is already zero, it's going to help. Now, if you have the choice somehow between being treated as a clergy employee and a "normal" employee - then it depends and you would need to look at the specific numbers to determine which one was better.

[@wink4jesse]

Showing the forms/numbers really helps here. Great work!

[@IntentionalFinance101]

thanks Jesse. Glad to help!

[@griffinlowe2075]

If you opt out of social security tax, do you still have to pay Medicare tax on the housing allowance portion?

[@IntentionalFinance101]

When you opt out, you are opting out of both social security and medicare on all of your clergy wages.

[@vanessalepisi]

What if the clergy W2 also has an amount for "Auto" in box 14? Which tax is that subject to? Where should that be found on the tax return form?

[@IntentionalFinance101]

You should ask the employer. Box 14 is usually informational. So it probably means that there was an auto allowance or payment of some sort that is likely already included in box 1 of the w2. You shouldn’t have to do anything with the box 14 auto amount if the employer did the w2 correctly.

[@miamoxam]

We made car payments to our retired minister's car until it was paid off. Last year we sent of a lump sum to pay it off early. Does he get a 1099 NEC for those payments... or a W2... He retired in early 2021 and we finally paid it off in 2023. Thanks

[@IntentionalFinance101]

It's definitely taxable. Since it's pastoral, it's subject to SECA either way... but still best to do it right of course. If he's still the active pastor, probably a W2. Since he's retired... is he still performing services for the church or not? Probably still a W2 if he is.

[@miamoxam]

@@IntentionalFinance101 Thank you for answering my question. I figured it was taxable. He has not performed any services for us since being retired. The board bought the car before he retired… but afterwards we kept making his payments. Thank you again.

[@IntentionalFinance101]

I think you’ll be fine either way. Still seems like payment for services… even if it’s past services at this particular point. I haven’t seen this before but I think I’d lean towards a w2 (without having researched it myself).