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eastgate1
February 12, 2024
Question

How do I set up clergy housing to be not subject to income tax but IS subject social security and medicare tax?

  • February 12, 2024
  • 2 replies
  • 0 views
The pastor is set up as an employee and has always paid SS/Med tax in the past but has the housing allowance that is exempt from Income tax. This worked fine with QuickBooks Desktop but am not finding a fix for QBO.

    2 replies

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    RCV
    February 13, 2024

    I've got you covered on how to set up clergy housing not subject to income tax but is subject to social security and medicare tax, eastgate1.

     

    The clergy or ministers can be treated as employees or self-employed. Then, your church may also provide some or all of your minister's housing and utilities as part of their overall compensation package. You can check out more info about clergy wages and housing on the IRS website.

     

    To exempt your pastor from income tax, follow the steps to Exempt your employee from Federal or State Withholding. If you need to be exempt from all other payroll taxes, just follow the steps below:

     

    1. Go to Payroll, then select Employees.
    2. Choose your clergy from your employee list, and click Edit Employee.
    3. From What are [Employee’s] Withholdings?, tap Edit ✎.
    4. From the Tax Exemptions section, select the Social Security, Medicare, FUTA, or [State] SUI boxes as appropriate.
    5. Press Save, and then Done.

     

    You can check out this article for more details about exempting clergy (or ministers) from payroll taxes and how to set up a housing allowance item for clergy: Set up clergy on payroll. After dealing with the taxes, do you need to see their year-to-date amounts? You can run a bunch of payroll reports in QuickBooks. Check out this guide to help you build one: Run payroll reports.

     

    I'm always available to help, so leave your other payroll-related questions here. I'll get back to you as soon as possible. 

    E
    eastgate1Author
    February 13, 2024

    Yes, thanks-I have seen this answer before but it does not fix the situation unfortunately.  The two choices for clergy housing work as follows:

     

    Clergy housing/In Kind:  This shows up in box 14 of the W2, BUT the entire wages of the pastor (salary and housing) are completely liable for income tax, SS, and Medicare, hence no tax advantage at all

     

    Clergy housing/Cash: This is good in that it doesn't show up as taxable for the income tax (box 1 in W2), BUT it also does not tax SS and Medicare-so the pastor would be eligible for self employment tax.  What kind of advantage does that give in the long run?  No income tax, but he must pay the high rate of self employment tax?

     

    QB desktop did this right-Box 1 was his salary minus his housing and allowance and boxes 3 & 5 were salary plus housing and those taxes were shared by the employer and employee.  For example: say he receives a $50k salary plus a $10k housing...Box 1 should be $50k, Boxes 3 & 5 should be $60k.

     

     

     

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    LollyNino_C
    February 13, 2024

    Let me guide you to the right support to help you set up the tax exemption, @eastgate1.

     

    If you continue to get the same result, I recommend contacting our Payroll Support Team. One of our specialists will review your payroll setup and make sure the tax rate for your Medicare employee portion is set to the correct one. They'll pull up your account in a secure environment and set up the Pastor for tax exemption in QuickBooks Online (QBO).

     

    Here's how:

     

    1. In your company, tap the Help icon at the top to open the QB Assistant window.
    2. Go to the Assistant tab, scroll down to the Type Something field, and key in the issue or topic. For example, needs to correct the medicare tax calculation.
    3. Click the Get help from a human link and follow the on-screen steps to complete the process.
    4. How would you like to connect with us? section, select Chat for real-time assistance or Callback to speak with an agent.

     

    This reference provides information about our support hours and types for each payroll version: Contact Payroll Support. Make sure to click the QuickBooks Online Payroll link for the complete details.

     

    The Community will always have your back if you need a hand with creating payroll or any QBO related. I look forward to hearing from you again.

    J
    JN833
    May 22, 2024

    Just wondering if you ever found a resolution for this in QuickBooks payroll online. I've spent hours on the phone already with QuickBooks (and they have tried really hard), but haven't found a solution yet.

    J
    JB3300
    May 22, 2024

    There is not one at this time.  I switched to 2024 desktop.  No problem there.  I am hoping they fix it before phasing out the desktop version altogether. 

     

     

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