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The following includes answers to common questions about entering minister wages and church employee income.
Enter minister wages subject to self-employment tax in Screen W2, located in the Income folder. Enter 1 in the Wage code field to indicate Minister, and UltraTax CS automatically transfers the amount of federal wages to Clergy Worksheet 1, line 1. Enter 2 in the Code field in the Box 14 statement dialog to indicate housing allowance, and enter the amount you want transferred to Clergy Worksheet 1, line 4a.
Data must be entered in Screen Clergy, located in the Taxes folder. If a parsonage is provided, complete the Parsonage provided by church subsection. If an allowance is provided, complete the Parsonage or rental allowance provided by church subsection.
If the information is not reported on Form W-2, enter the amount of the housing allowance subject to self-employment tax in the Parsonage or Allowance Housing Information section in Screen Clergy. Amounts entered in the Fair rental value of parsonage provided by church field transfer to Clergy Worksheet 1, line 3a. Amounts entered in the Parsonage allowance (Force) field transfer to Clergy Worksheet 1, line 4a. The amounts transfer to the applicable line of the SE Earnings Worksheet.
Per IRS Publication 517, when housing allowances are not included on Form W-2, Box 1, and amounts received were greater than actual costs, report the excess on Form 1040, line 7.
Enter the total housing allowance received in Screen W2, Box 14, or if not reported on Form W-2, enter the total in the Parsonage or Allowance Housing Information section in Screen Clergy, located in the Taxes folder. Amounts entered in the Fair rental value of parsonage provided by church field transfer to Clergy Worksheet 1, line 3a. Amounts entered in the Parsonage allowance (Force) field transfer to Clergy Worksheet 1, line 4a. Excess housing allowance is calculated on Clergy Worksheet 1, line 4i. Excess utilities allowance is calculated on Clergy Worksheet 1, line 3e. Excess allowance is transferred to Form 1040, line 7.
If the W-2 received contains amounts in boxes 3 and 5, no further input is required. If the W2 received does not contain amounts in these boxes, Schedule SE, Section B may be required.
In Screen OtherTax, enter the amount from W2, box 1 in the Electing church wages for an employee other than minister field.
If a minister has been approved by the IRS as exempt from self-employment tax, enter X in the Form 4361 filed with IRS field in Screen Clergy.
A retired minister may receive rent-free use of a home or a rental allowance in recognition of past services as a minister. The lesser of the designated allowance, the fair rental value of the home, or the actual expense of maintaining the home is excludable from income. The taxable amount of any retirement distribution is reduced by the amount of a designated housing allowance.
Enter X in the Ministerial pension with housing allowance field on Screen 1099R. Enter the gross distribution in Box 1, and the distribution code in Box 7, along with any other information from the Form 1099-R. Do not enter an amount in Box 2a, Taxable amount. On the corresponding Screen 1099R-2, complete these fields: Designated housing allowance, Actual housing expenses, and Fair rental value of housing, including utilities. UltraTax CS will calculate the excludable portion of the pension and automatically carry the taxable amount to Form 1040 line 16b. A statement will print with the return to detail the calculation. The taxable and non-taxable portion of the pension will also carry to the Clergy Worksheet 1, lines 5a and 5b, to be included in the calculation of the percentage of tax-free income, if necessary.
If this calculation is not desired, enter the gross distribution in Box 1, the taxable amount in Box 2a, and leave the Ministerial pension with housing allowance field blank. Do not complete the data entry section Ministerial Pension with Housing Allowance on Screen 1099R-2. The taxpayer should have documentation supporting the expenses of providing a home, but does not need to submit the documentation to the IRS.