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him $100 per month designated as an allowance

not deductible because they are allocable to that

(Form 1040). He reads the chart on page 1 of

for utility costs.

allowance. He subtracts the $60 from the $259

the schedule which tells him he can use Section

The parts of Rev. and Mrs. Michaels’ income

and enters the $199 difference on line 2.

A — Short Schedule SE to figure his self-em-

tax return are explained in the order they are

ployment tax. Rev. Michaels is a minister, so his

Line 3.

He enters his net profit of $3,801 both

completed. They are illustrated in the order that

salary from the church is not considered church

on line 3 and on Form 1040, line 12.

the Rev. Michaels will assemble the return to

employee income. Thus, he does not have to

Lines 4 through 8b.

Rev. Michaels fills out

send it to the IRS.

use Section B — Long Schedule SE. He fills out

these lines to report information about his car.

the following lines in Section A.

Form W–2 From Church

Line 2.

Rev. Michaels attaches a statement

Form 2106–EZ

(see Attachment 2, later) that explains how he

The church completed its Form W – 2 for Rev.

figures the amount ($44,347) to enter.

Rev. Michaels fills out Form 2106 – EZ to report

Michaels as follows:

Line 4. He multiplies $44,347 by .9235 to get

the unreimbursed business expenses he had as

Box 1.

The church entered Rev. Michaels’

his net earnings from self-employment

a common-law employee of First United Church.

$31,000 salary.

($40,954).

Line 1.

Before completing line 1, Rev.

Box 2.

The church left this box blank because

Line 5. The amount on line 4 is less than

Michaels fills out Part II because he used his car

Rev. Michaels did not request federal income

$87,000, so Rev. Michaels multiplies the

for church business. His records show that he

tax withholding.

amount on line 4 ($40,954) by .153 to get his

drove 2,708 business miles, which he reports in

self-employment tax of $6,266. He enters that

Boxes 3 through 6. Rev. Michaels is consid-

Part II. On line 1, he multiplies 2,708 miles by the

amount here and on Form 1040, line 55.

ered a self-employed person for purposes of

mileage rate of 36 cents for the year. The result

social security and Medicare tax withholding, so

is $975.

Line 6. Rev. Michaels multiplies the amount

the church left these boxes blank.

on line 5 by .5 to get his deduction for one-half of

Line 4.

He enters $219 for his professional

self-employment tax of $3,133. He enters that

Box 14.

The church entered Rev. Michaels’

publications and booklets.

amount here and on Form 1040, line 28.

total parsonage and utilities allowance for the

Line 6.

Before entering the total expenses on

year and identified them.

line 6, Rev. Michaels must reduce them by the

Form 1040

amount allocable to his tax-free parsonage al-

Form W–2 From College

lowance. On the required Attachment 1 (shown

After Rev. Michaels prepares Form 2106 – EZ

later), he shows that 23% (or $275) of his em-

and the other schedules, he fills out Form 1040.

The community college gave Rev. Michaels a

ployee business expenses are not deductible

He files a joint return with his wife. First he fills

Form W – 2 that showed the following.

because they are allocable to the tax-free par-

out the address area and completes the appro-

sonage allowance. He subtracts $275 from

Box 1.

The college entered Rev. Michaels’

priate lines for his filing status and exemptions.

$1,194 and enters the result, $919, on line 6. He

$3,400 salary.

Then, he fills out the rest of the form as follows:

also enters $919 on line 20 of Schedule A (Form

Box 2.

The college withheld $272 in federal

1040).

Line 7.

Rev. Michaels reports $34,640. This

income tax on Rev. Michaels’ behalf.

amount is the total of his $31,000 church salary,

Schedule A (Form 1040)

$3,400 college salary, and $240, the excess of

Boxes 3 and 5.

As an employee of the col-

lege, Rev. Michaels is subject to social security

his utility allowance over his utility costs. The two

and Medicare withholding on his full salary from

salaries were reported to him in box 1 of the

Rev. Michaels fills out Schedule A as explained

the college.

Forms W – 2 he received.

here.

Line 12.

He reports his net profit of $3,801

Box 4.

The college withheld $210.80 in social

Line 6.

Rev. Michaels deducts $1,750 in real

from Schedule C – EZ, line 3.

security taxes.

estate taxes.

Box 6.

The college withheld $49.30 in Medi-

Line 28.

He enters $3,133, half his SE tax

Line 10.

He deducts $6,810 of home mort-

care taxes.

from Schedule SE, line 6.

gage interest.

Line 37.

He enters the total itemized deduc-

Line 15.

Rev. and Mrs. Michaels contributed

Schedule C–EZ (Form 1040)

tions from Schedule A, line 28.

$4,800 in cash during the year to various qualify-

ing charities. Each individual contribution was

Line 49.

The Michaels can take the child tax

Some of Rev. Michaels’ entries on Schedule

less than $250.

credit for their daughter, Jennifer. Rev. Michaels

C – EZ are explained here.

figures the credit by completing the Child Tax

Line 20.

Rev. Michaels enters his un-

Line 1.

Rev. Michaels reports the $4,000 from

Credit Worksheet (not shown) in the instructions

reimbursed employee business expenses from

weddings, baptisms, and honoraria.

for Form 1040. Because he did not receive an

Form 2106 – EZ, line 6.

advance payment of the child tax credit, he en-

Line 2.

Rev. Michaels reports his expenses

Lines 24, 25, and 26.

He can deduct only the

ters the full $1000 credit on line 49.

related to the line 1 amount. The total consisted

part of his employee business expenses that

of $87 for marriage and family booklets and

Line 55.

He enters the self-employment tax

exceeds 2% of his adjusted gross income. He

$172 for 477 miles of business use of his car,

from Schedule SE, line 5.

fills out these lines to figure the amount he can

mainly in connection with honoraria. Rev.

deduct.

Line 61.

He enters the federal income tax

Michaels used the standard mileage rate to fig-

shown in box 2 of his Form W – 2 from the

Line 28.

The total of all the Michaels’ itemized

ure his car expense. He multiplied the standard

college.

deductions is $13,573, which they enter on line

mileage rate of 36 cents by 477 miles to get

28 and on Form 1040, line 37.

$172.

Line 62.

He enters the $8,400 estimated tax

These expenses total $259 ($172 + $87).

payments he made for the year.

Schedule SE (Form 1040)

However, he cannot deduct the part of his ex-

penses allocable to his tax-free parsonage al-

lowance. He attaches the required statement,

After Rev. Michaels prepares Schedule C – EZ

Attachment 1 (shown later) to his return showing

and Form 2106 – EZ, he fills out Schedule SE

that 23% (or $60) of his business expenses are

Page 13

Publication 517 - Social Security And Other Information For Members Of The Clergy And Religious Workers - 2003 Page 13

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