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2005 Tax Year |
Keyword: Salaries
This is archived information that pertains only to the 2005 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
A minister receives a salary plus a housing allowance. Is the housing
allowance income? Where do the minister report it?
A minister's housing allowance, sometimes called a parsonage allowance
or a rental allowance, is excludable from gross income for income tax purposes,
but not for self-employment tax purposes.
If you are a minister and receive as part of your salary (as a minister)
an amount officially designated as a rental allowance, you can exclude from
gross income the amount that is used to provide or rent a home. However, the
exclusion is limited to the lesser of the fair market rental value (including
furnishing, utilities, garage, etc.) of the amount officially designated (in
advance of payment) as a rental or housing allowance, or the actual amount
used to provide a home, and cannot exceed what is reasonable pay for your
services. The payments must be used in the year received.
If housing is furnished to you by your congregation as pay for your services
as a minister, the exclusion cannot be more than what is reasonable pay for
your services, and is limited to the fair market rental value (including furnishings,
utilities, garage, etc.) of the home.
If you own your home and you receive a housing allowance as part of your
pay, for your services as a minister, the exclusion cannot be more than the
smaller of the following:
- the amount actually used to provide a home,
- the amount officially designated (in advance of payment) as a rental or
housing allowance, or
- the fair market rental value of the home, including furnishings, utilities,
garage, etc.
An amount which represents reasonable pay for your services as a minister.
For additional information on housing allowance, refer to Publication 517, Social Security and Other Information for the Members of
the Clergy and Religious Workers. For information on earnings for clergy
and reporting of self-employment tax, refer to Tax Topic 417, Earnings
for clergy.
References:
- Publication 517, Social Security and Other Information for the
Members of the Clergy and Religious Workers
- Tax Topic 417, Earnings for clergy
Are partners considered employees of a partnership or are they self-employed?
Partners are considered to be self-employed. If you are a member of a partnership
that carries on a trade or business, your distributive share of its income
or loss from that trade or business is net earnings from self-employment.
Limited partners are subject to self-employment tax only on guaranteed payments,
such as salary and professional fees for services rendered.
We are about to hire employees and need to know how much tax to
take out and where to send this money?
You will need to secure a completed Form W-4 (PDF), Employee's
Withholding Allowance Certificate, from each employee. You will need Publication 15, Circular E, Employer's Tax Guide, and Publication 15-A (PDF), Employer's Supplemental Tax Guide, to determine
the amount of withholding and for directions on depositing the withholding
amounts and other employment taxes.
Generally, employers will quarterly file Form 941 (PDF), Employer's Quarterly Federal Tax Return, and annually
file Form 940 (PDF), Employer's Annual Federal
Unemployment Tax Return (FUTA), and Form W-2 (PDF), Wage
and Tax Statement, with Form W-3 (PDF), Transmittal
of Income and Tax Statements.
References:
- Publication 15, Circular E, Employer's Tax Guide
- Publication 15-A (PDF), Employer's Supplemental
Tax Guide
- Form 940 (PDF), Employer's Annual Federal
Unemployment Tax Return
- Form 941 (PDF), Employer's Quarterly Federal
Tax Return
- Form W-2 (PDF), Wage and Tax Statement
- Form W-3 (PDF), Transmittal of Income and
Tax Statements
- Form W-4 (PDF), Employee's Withholding Allowance
Certificate
If a new employee has reached the limit for social security wage
base with a previous employer in the same year, does the new employer need
to withhold FICA taxes on wages paid for both the company and employee?
Yes, the social security wages base limit is applied to each separate employer.
The individual employee is subject to social security taxes up to the maximum
amount from each employer. As a result of an employee working for two or more
employers in the same year, social security tax in excess of the maximum wage
base may be withheld from his or her pay. An employee can claim the excess
of social security tax withheld from pay resulting from working for two or
more employers as a credit against the employee's income tax when filing Form 1040 (PDF), U.S. Individual Income Tax Return. However,
there is no provision for an employer to get a credit for the employer portion
of social security tax paid in this situation. There is no wage limit on the
Hospital Insurance tax.
I am self-employed. How do I report my income and how do I pay Medicare
and social security taxes?
Your self-employment income is reported on Form 1040, Schedule C (PDF), Profit or Loss from Business, or on Form 1040, Schedule C-EZ (PDF), Net Profit from Business.
Your Medicare and social security taxes are reported on Form 1040, Schedule SE (PDF), Self-Employment Tax.
As a self-employed person, you pay your Medicare and social security taxes
the same way you pay your income taxes. If you expect to owe less than $1,000
in total taxes, you can pay them when you file your income tax return. If
you expect to owe $1,000 or more in total taxes, you will need to make estimated
tax payments. These payments are made quarterly using Form 1040-ES (PDF), Estimated Tax for Individuals. You will need to
figure these taxes at the beginning of the year. To learn about figuring and
making estimated tax payments, please refer to Publication 505, Tax
Withholding and Estimated Tax.
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