Hello - I'm a new pastor. I received a W2 from my church with my total wages. In a box (14) on the W2, I'm given the total of the housing allowance I received for 2017. The total in box 1 includes the dollars appearing in box 14. As example, I received a housing allowance of $2500 as a portion of my total compensation $40000. $40000 is in box 1 and $2500 is in box 14. When I enter these into TurboTax, my tax burden actually goes up based on the housing allowance, which doesn't seem right. My question is: should my church have included the $2500 in the $40000 or should I have received a W2 that said $37500 in box 1 and $2500 in box 14? Am I double counting the income in some way? Any help is appreciated.
A Clergy W-2 from a church should show Salary in box 1 and the housing allowance in box 14. If your salary is 37,500 and the housing allowance is 2,500 for a total compensation of 40,000. Box 1 is 37,500, Box 14 is 2,500. You may need to ask your treasurer for a corrected W-2.
Turbo Tax then correctly asks you how much you spent on housing. If you spent 2,499, Turbo Tax will show $1 of "EXCESS ALLOWANCE" on line 7 of your 1040. If you spent 3,000 on housing you will only benefit up to the 2,500 determined by your compensation package. It cannot be retroactively adjusted.
So if your actual housing expenses are 3,000+ then please have your governing board increase your housing allowance to reflect your actual expenses ASAP moving forward. From the church perspective this is not an increase in your compensation, it is a re-categorization such that your salary would then be 37,000 and your housing allowance 3,000. It is a significant tax saving to use housing allowance to your advantage.
In housing allowance expenses you can include: utilities, mortgage, maintenance, closing costs, repairs, rent, yard services, etc.
In my denomination a church treasurer can call our regional office for assistance with the w-2, if she is confused or unclear.
Hope this is helpful to you.