How to Handle Clergy Housing Allowance & Self Employment Taxes for Ministers

You're right to be confused - clergy taxation is uniquely complex! Ministers have a "dual tax status" - they're typically employees for income tax purposes but self-employed for Social Security/Medicare purposes. The issue here is that your wife's church shouldn't be withholding Social Security and Medicare taxes on her W-2 (boxes 4 and 6). Ministers are exempt from these withholdings and instead must pay self-employment tax (which covers both Social Security and Medicare) on their ministerial income including the housing allowance. The housing allowance is excluded from income tax (federal, not SE tax), but it is subject to self-employment tax. You'll need to report this correctly on Schedule SE. The TurboTax question is asking which portions you want to calculate self-employment tax on, and the answer should be "both" (wages and housing allowance). I recommend contacting your wife's church payroll department to let them know they shouldn't be withholding Social Security and Medicare taxes from her pay. You'll likely need to file Form 843 to request a refund of the incorrectly withheld Social Security and Medicare taxes.

When I was dealing with this same situation last year, I found https://taxr.ai super helpful! I uploaded my wife's W-2 and our housing allowance documentation, and it immediately identified that our church was incorrectly withholding FICA taxes. The tool explained exactly how to handle the dual tax status of clergy and even generated a letter we could send to our church's payroll department explaining the error. What's great is it showed us exactly how to report the housing allowance on our tax return to ensure it wasn't counted for income tax but was properly included for self-employment tax calculation. The tool even helped us file the Form 843 to get back the wrongfully withheld taxes, which ended up being over $2,000!

Just wanted to update that I tried taxr.ai after seeing this thread, and it was exactly what I needed! I uploaded my husband's W-2 and the housing allowance designation letter from his church, and within minutes I had clear answers. The system flagged that our church had incorrectly withheld Social Security and Medicare taxes and gave step-by-step instructions on how to get that money back. It also provided a templated letter to send to the church's treasurer explaining the special tax status of ministers so they could fix it for next year. The best part was how it walked me through exactly which boxes to check in TurboTax - it even had screenshots showing where to enter the housing allowance as excluded from income tax but included for self-employment tax. Saved me hours of research and probably an expensive call to a tax professional!

If you're having trouble getting through to the IRS about your Form 843 refund for the wrongfully withheld taxes, I highly recommend using https://claimyr.com - I was stuck in the same situation with incorrectly withheld FICA taxes on my ministerial income and couldn't get anyone at the IRS to help me. With Claimyr, I got through to an actual IRS agent in about 15 minutes instead of waiting on hold for hours or getting disconnected. The agent was able to confirm exactly what documentation I needed to include with my Form 843 and gave me specific guidance for my situation as a minister. You can see how the service works here: https://youtu.be/_kiP6q8DX5c I was initially concerned my refund would be delayed or denied because I wasn't filing it correctly, but after speaking with the IRS directly, I felt completely confident. They even gave me a reference number to include with my submission to help track it.

Okay I need to eat my words here. After posting my skeptical comment, I decided to try Claimyr anyway because I was desperate to resolve my minister tax situation before the filing deadline. I'm shocked to report it actually worked exactly as advertised. I got a call back in about 20 minutes, and suddenly I was talking to an actual IRS representative who specialized in clergy taxation issues. She confirmed everything about the dual tax status and walked me through exactly how to complete Form 843 to reclaim the incorrectly withheld Social Security and Medicare taxes. The IRS agent even gave me her direct extension and told me to reference a specific case number on my paperwork, which she said would help expedite the review. For anyone dealing with this minister housing allowance issue who needs clarification directly from the IRS, this service is legitimately worth it. I've been trying to get this resolved for months!

Just want to add something important that no one's mentioned yet - ministers can file Form 4361 to opt out of self-employment taxes entirely if they have religious objections to public insurance. This exemption has to be filed early in your ministry career though (within your first two years of ministerial income). Has your wife considered this option? It would mean no Social Security or Medicare taxes at all, but also no benefits from these programs during retirement unless she has enough credits from other employment.

Anyone know if the housing allowance amount gets reported anywhere on the W-2? My husband's church just verbally told him about the housing portion, but I don't see it broken out anywhere on his W-2, just a total in Box 1. Makes me wonder if they're handling it correctly.

As a tax professional who specializes in clergy taxation, I want to emphasize a few critical points that could save you significant headaches: 1. **Documentation is everything** - Make sure your wife's church provided written documentation of the housing allowance designation BEFORE January 1st. The IRS requires this to be done prospectively, not retroactively. If they didn't do this properly, the housing allowance exclusion may not be valid. 2. **Housing allowance limits** - The excludable amount is limited to the LESSER of: (a) the amount officially designated, (b) actual housing expenses, or (c) fair rental value of the home. Many people miss the "actual expenses" requirement and end up owing taxes on the excess. 3. **State taxes vary** - While the housing allowance is excluded from federal income tax, some states (like California) don't recognize this exclusion and will tax it as regular income. 4. **Quarterly payments** - Since ministers pay self-employment tax and often have large housing allowances, you may need to make quarterly estimated tax payments to avoid underpayment penalties. The IRS expects you to pay as you go, not just at year-end. Get the church's withholding corrected ASAP and consider working with a tax professional who understands clergy taxation - it's complex enough that even experienced preparers often get it wrong.