Correctly filing Clergy taxes can be difficult, especially because many W-2 forms already contain errors or omissions. Here are ten common mistakes that are made when issuing Clergy W-2 forms.
- Forgetting to remove 403(b) contributions from taxable wages. The wages that Clergy defer into their traditional 403(b) retirement accounts should not be taxed.
- Forgetting to put 403(b) contributions in box 12. Even when payroll companies remember to remove 403(b) contributions from taxable wages, they may forget to report these in box 12 with code E.
- Including housing in taxable wages. Housing may or may not be taxable depending on the limitations of IRC section 107, but listing it in box 1 taxable wages tells IRS it is all taxable.
- Forgetting to list housing in Box 14. When removing a housing allowance from taxable wages, it is still important to communicate the allowance to the tax preparer. Box 14 is an information only box that can be used to list miscellaneous information.
- Including reimbursement plans as taxable wages. If you are reimbursed the exact amount of your expense or per-mile at the government rate, these reimbursements are not taxable income.
- Forgetting to include non-accountable plans as taxable wages. If you get paid a lump sum or monthly allowance for expenses, it should be included in taxable wages. This includes auto, professional, health and cell phone allowances.
- Putting information in boxes 3 through 6. As dual status employees, clergy are not subject to social security or medicare withholding, so boxes 3 through 6 should be blank or zero.
- Withholding social security or Medicare taxes. Clergy cannot have social security or medicare withholding. If it is not corrected, it will likely cause a red flag when IRS reviews the return.
- Using a 1099-MISC when the person should be paid on a W-2. Some Churches incorrectly pay clergy using Form 1099-MISC when they are actually employees. There are many factors determining whether someone is an independent contractor or employee, but in general if you have set hours, set duties, and the church controls how most of the work is done, you should be on a W-2.
- Not including moving expenses paid as taxable wages. Under the new Tax Cuts and Jobs Act, moving expenses paid by the Church are taxable, regardless of whether they are paid to you or to the moving company directly.
Did you know that Clergy Financial Resources prepares and corrects W-2 forms? It’s easy to request. Visit our website at https://www.clergyfinancial.com/services/church-payroll/easy-w-2-filing-is-a-click-away/ for more details.
For information on how to get started filing your clergy taxes with clergy financial, visit our website at https://www.clergyfinancial.com/services/clergy-tax-preparation/
Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
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