Minister with a housing allowance
A minister's return turns on 'dual status': an employee for income tax, but self-employed for Social Security. The housing allowance is excluded from income tax yet still taxed for self-employment.
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Taxpayer facts
Who this is and what their year looked like.
Daniel is a single ordained minister at a church in Fort Worth, Texas. He receives a salary plus a housing allowance the church designated in advance.
The church treats him as clergy: it issues a W-2 but withholds no Social Security or Medicare, so he settles those through self-employment tax and makes estimated payments. He has not opted out of Social Security (no Form 4361).
Source documents
The 2 documents you will prepare the return from: W-2 (Wage and Tax Statement), Housing allowance record — Cornerstone Community Church.
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Objectives
What a correct return should capture.
- Understand clergy 'dual status': a minister is an employee for income tax (gets a W-2) but self-employed for Social Security/Medicare (pays SE tax; the church withholds no FICA).
- Apply the housing-allowance exclusion: exclude from income tax the LEAST of (a) the amount designated in advance, (b) actual housing expenses, or (c) the home's fair rental value furnished plus utilities. Any designated amount above that least figure is taxable wages.
- Watch the trap: even though the housing allowance is excluded from INCOME tax, it IS subject to SELF-EMPLOYMENT tax.
- Compute SE tax on Schedule SE on the salary PLUS the housing allowance: 92.35% of that base, then the 12.4% and 2.9% layers.
- Take the one-half SE-tax deduction to reach AGI.
- Apply the single standard deduction and compute the income tax.
- Because the church withholds nothing, the minister pays through estimated payments: apply the estimates to find the refund or balance due, and test the quarterly payments against 100% of his 2024 tax for any underpayment penalty.
- Note the option (not elected) to request a Social Security exemption via Form 4361, and that Texas has no state income tax.
Check your work
The answer key and the complete return, the way a real client receives it: the 1040 and its schedules, the workpapers behind every number, and the signature forms.
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