Discussion:Preacher-Soc Sec/Medicare Problem
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Discussion Forum Index --> Tax Questions --> Preacher-Soc Sec/Medicare Problem
Taxestaxes (talk|edits) said: | 28 May 2008 |
| I just want to make sure I am not overlooking something. I have a preacher whom I did taxes for first time. Apparently, prior preparer did things like this: Church didnt withhold taxes, so at end of year, they do a w2, preparer told him what to send in with copy of W2 - which was his portion of FICA that should have been withheld. Then filed his return. This was done for 3 years. Nothing from IRS that there was a problem - which was there was never church portion of FICA sent in. So I do them for him, letting him know that past 3 years were big errors. I was not doing it like that, and filed his 941 correctly. Which, surprise, it was double what was owed prior year. Anyway, informed him of proper way for future use. WEll, you guessed it, I do it right, so now IRS decides to send him a letter telling him he owed for past 3 years the FICA portion of the church. And they charged major penalties for not filing 941's. He now owes 4x the amount originally owed. I have sent in letters requesting abatement, etc. but just wanting to get some advice or comments from others to make sure I am not missing something I could use as a point of arguement with IRS? Thanks in advance! | |
| 28 May 2008 | |
| Wages paid by church to licensed or ordained minister are not subject to FICA. Minister's wages are subject to SECA. The minister's W-2 should have reported wages in box 1, FWT in box 2, $0's in boxes 3, 4, 5 & 6. 941's should have matched (at least insofar as the minister's wages). Doesn't sound to me like you understand clergy taxation. May want to do a search in the box to left. There are numerous threads on the issue here. | |
| 28 May 2008 | |
| Members of the Clergy
For services in the exercise of the ministry, members of the clergy receive a Form W-2 but do not have social security or Medicare taxes withheld. They must pay social security and Medicare by filing Form 1040 (Schedule SE), Self-Employment Tax. For additional information refer to Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers . Also, see Topic 417. | |
| May 28, 2008 | |
| It wasn't your fault TT. Hopefully you could get penalties abated, so give it a try. | |
| 28 May 2008 | |
| Doesn't look like either of the preparers understood clergy taxation. As Marcilio said, for all years ALL of the SS & Medicare should have been paid on the 1040, not the 941. Did the church not file 941s at all in the past three years? From your post it seems the minister was only paying half on the 1040, not all, and therefore owes the back other half personally. If you filed the 941 paying the employer portion, and that triggered a past year audit, you need to correct the 941 you filed to show no FICA due. Are the penalties being charged to the church or the minister for not filing 941s? You are not clear. | |
| 28 May 2008 | |
| Before proceeding I would talk to the pastor and see if there is an outside chance he opted out of social security by completing form 4361 "Application for Exemption from self employment tax for use by ministers ,members of religious orders and Christian Science Practitioners." Doesn't appear so based on your post but stranger things have happened.
If he hasn't opted out it is probably too late to request now as application must be submitted within 2 years of ordination or licensed. (See instructions for form 4361) | |
| 28 May 2008 | |
| At the risk of repeating what others have already said, I am going to say it a different way.
The first preparer doesn't know what he is talking about. The pastor does not pay his half of FICA, he pays self employment tax unless he has made a one time election to be exempt. (This means he gets no Social Security or Medicare from pastoral earnings when he is old and gray.) He would owe the difference between the phony half of FICA he paid and what was due as self employment tax plus penalties (maybe) and interest (definitely). The church should file Forms 941 reporting tax withheld from employees of the church--the secretary, custodian, other non-ordained staff and income tax withheld from the pastor's salary if requested. If the church is required to file 941s it is subject to the same rules as any other taxpayer and would be subject to penalties for late filing unless they demonstrated reasonable cause for their transgressions. | |
| 29 May 2008 | |
| As a former temple bookkeeper, I can tell you it depends. Did the church decide to participate in the ss system? Some clergy are salaried and have taxes w/h. Others do not. You have to be familiar with the employment contract.
Sounds to me like your pastor is self employed. He may opt out of the ss system. As for the church, they may or may not cover their employees for ss. | |
Taxestaxes (talk|edits) said: | 29 May 2008 |
| Thanks so much for the responses, they have helped and actually triggered something for me. The penalties, etc. are for the church. Wages from church can be subject to FICA if church did not apply for exemption, or at least thats what I have read and understood from pub 517. NO, preacher is not exempt and never has claimed to be. What prior preparer did was have church send in a check for their matching portion of FICA, with nothing!!! No form 941, etc. IRS of course just kept this money and that was it. AS well, she did not include the W2 income on the form SE for the preacher, so technically at the time, only the employer match was being paid. This happened for 2003, 2004, 2005. Finally IRS got smart and sent letter stating forms 941s were never filed and as well, it showed that the employees portion was still owed. What the kicker was, they charge major penalties for failure to file form 941. Of course church is frantic, they dont have this money to pay!!! Anyway, after reading the posts, I realized that forms 941s should never have been filed. So I am sending in letter, 941c, form 843 explaining this and requesting a refund for the three years payments. Of course, now I have to amend preachers return to include the SE on his personal return, but at least there wont be failure to file penalties!!! And he can pay what he owes with the money he gets back from the 941s? Does any of this make sense!? And I will admit, I dont do preachers returns, although I know some of the situations and have read the pub 517. Thanks again! | |
| 29 May 2008 | |
| go to the ATXcommunity board and ask for Mike Malody. He specializes in clergy taxes, and should be able to help you. | |
| May 29, 2008 | |
| You're some right and some wrong. Normally, the church does NOT withhold a dime on a pastor. Ever. When it's done, it's really incorrect. Now, that said, that they did pay the 1/2 ER share is super news. There'll be no 941 penalty since the penalty is based on tax due. No tax due. There'll be some work digging up cancelled checks to show IRS that the taxes were paid, and 941's created to match. Then, pick up the remainder on his SE...unless you're sure that you can get the other 1/2 refunded. And if you go for the church refunds, that means the church now has its money back, but he's still out the SE...so either 941c's and cross your fingers, or W2c with an odd-freakin' W2 since they will have paid their 1/2 and he didn't and you have to pick up only 1/2 on his 1040 somehow. Yuck. | |
| 29 May 2008 | |
| First off, ministers performing ministerial duties are ALWAYS considered self-employed for Social Security and Medicare purposes. That means EVEN IF THE MINISTER IS AN EMPLOYEE OF THE CHURCH, he will not have FICA wages or any FICA taxes withheld. All of his wages will be subject to SE taxes instead of FICA taxes.
Secondly, it is not necessarily correct that 941's should not have been filed. You will need to determine whether or not the minister is an employee or not. If the minister is an employee of the church (this would be the most likely scenario) his wages will be reported to the IRS on Forms 941 filed quarterly and Form W-2. The difference between him and the average Joe is that his W-2 will only show amounts in boxes 1 and maybe 2 (see Pub 517, page 10, bottom of first column) but nothing in boxes 3-6. If the church pays 1/2 of his SE tax, it is an additional wages (can you spell 'bonus') and does not get reported in box 4 of the W-2. If the minister is self-employed his wages should have been reported on a 1099-MISC, not a W-2. Any SS/MC paid on his behalf should be included in the 1099-MISC as compensation. When is a minister a common-law employee and when is he truly self-employed? The answer is the same as for everyone else. Look at the 20 factor test the IRS uses. But in general, ministers acting pastorally for one church (as opposed to for example, traveling evangelists, missionaries, circuit riding preachers) will be considered employees of that church, not independent contractors, BLRG's comments about employment contract notwithstanding. In all likelihood, the tax deposits sent in by the church should have been accompanied by a 1040ES showing them as estimated tax deposits made on behalf of the minister, rather than as 941 deposits. The 941's then would have shown minister wages but zero withholding (assuming no other employees). The W-2 should have reported Box 1 wages but zero withholding. Now, housing allowance is a separate discussion. Do a search and you will find several good discussions. | |
| 30 May 2008 | |
| Try this:
www.crookston.org/web/parish/Payroll/Clergy/Tax/clergytax.html | |
