How to enter Minister Income and Housing (Parsonage) Allowance in Scenario Analysis

Ministers may be considered employees of a church or self-employed. Certain types of pay, like housing or parsonage allowance, may be exempt from federal income tax but subject to Self-Employment (SE) Tax. 

Ministers may also have additional Schedule C income from performing other services, like officiating weddings, funerals, etc. 

Modeling SE Tax will vary depending on whether the client is considered an employee of the church or self-employed. 

To illustrate this, we will use examples for our sample minister, Bob, showing three different types of income: 

1. Wages paid by the church
2. Designated housing allowance
3. Schedule C income from fees for performing services

The first example assumes Bob is considered an employee of the church, while the second example assumes he is self-employed.

 

Example 1: Bob is considered an employee of the church and has FICA (Social Security and Medicare payroll taxes) withheld from his wages

Bob is considered an employee of the church and has income as follows: 

• $55,750 gross wages, FICA is withheld
• $1,850 gross Schedule C income from officiating weddings; after expenses, net profit is $1,575
• $33,250 designated housing allowance
  
  

Wages

In the Wages Worksheet, enter “Gross Wages" of $55,750 for Bob. (You can learn more about the Wages Worksheet here: How Do I Use the Wages Worksheet?). As a best practice, you'll want to enter income on a per-taxpayer basis and ensure any overrides are cleared to properly account for SE Tax.

Schedule C Income

To add Schedule C Income, click on the pencil icon in the Schedule C field in the Schedule 1 Income section to open the "Schedule C Entities Worksheet." Then select the appropriate taxpayer’s name from the dropdown. In this example, we entered “Gross Sales” of $1,850 and “Net Profit” of $1,575. 

For more details on the Schedule C Worksheet, see our knowledge base article How do I model Schedule C Income?

 

Housing Allowance

Ministerial income may include a designated housing allowance, which is generally exempt from federal income tax but subject to Self-Employment (SE) Tax. To account for this, navigate to and expand the Schedule SE - Self Employment Detail area of the "Other Taxes" section in Scenario Analysis and enter any housing allowance as “Other Self Employment Income." 

 

 

In our example above, SE Tax totals $4,815, and is calculated based on Schedule C Income and the Housing Allowance.

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Example 2: Bob is considered self-employed

Bob is considered self-employed and has income as follows:

• $55,750 gross wages, FICA is not withheld
• $33,250 designated housing allowance
• $1,850 gross Schedule C income from officiating wedding; after expenses, his net profit is $1,575
  
  

Wages

In the Wages Worksheet, we entered “Gross Wages” of $55,750 for Bob. We checked the boxes that the wages are exempt from Social Security and Medicare Payroll Tax. This is important because, while the income is not technically exempt from these taxes, the IRS states that these taxes are paid via Schedule SE as SE Tax. Accordingly, we will be making an adjustment to calculate self-employment tax on this income. Checking these boxes will indicate that FICA has not yet been withheld.

As a best practice, you'll want to enter income on a per-taxpayer basis and ensure any overrides are cleared to properly account for SE Tax.

Schedule C Income

To add Schedule C Income, open the "Schedule C Entities Worksheet" in the "Schedule 1 Income" section, select the appropriate taxpayer’s name from the dropdown. In this example, we entered “Gross Sales” of $1,850 and “Net Profit” of $1,575. 

For more details on the Schedule C Worksheet, see our knowledge base article How do I model Schedule C Income?

 

Housing Allowance / Wages Subject to SE Tax

Ministerial income may include a designated housing allowance, which is generally exempt from federal income tax but subject to Self-Employment (SE) Tax. Also, in this example, Bob’s salary is subject to SE Tax because he is considered self-employed (and no FICA tax has been withheld).

To account for this, navigate to and expand the Schedule SE - Self Employment Detail area of the "Other Taxes" section in Scenario Analysis and enter any housing allowance as “Other Self Employment Income."  In our example here, the $88,250 as “Taxpayer 1 Other Self Employment Income” comes from the $33,250 of housing allowance plus $55,750 of wages. You can use the calculation rows within Holistiplan's Field Notes feature to make a note of these two items for future reference.

 

In our example above, SE Tax totals $12,692, and is calculated based on the wage income with no FICA withheld and the Housing Allowance.

Example of field note/calculation row data entry:

 

Additional IRS resources:

• Topic no. 417, Earnings for Clergy
• Ministers' Compensation & Housing Allowance