Publication 517 - Social Security And Other Information For Members Of The Clergy And Religious Workers - 2011 Page 8
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30Income Items
Accountable plans. To be an accountable
addition, all of your net earnings are subject to
plan, your employer’s reimbursement arrange-
the Medicare (hospital insurance) part of the SE
ment must include all three of the following rules.
The tax treatment of offerings and fees, outside
tax. This tax rate is 2.9%. The combined
earnings, rental allowances, rental value of par-
self-employment tax rate is 13.3%.
•
Your expenses must have a business con-
sonage, earnings of members of religious or-
nection — that is, you must have paid or
Nonfarm Optional Method
ders, and foreign earned income is discussed
incurred deductible expenses while per-
here.
forming services as an employee of your
You may be able to use the nonfarm optional
employer.
method for figuring your net earnings from
•
Offerings and Fees
You must adequately account to your em-
self-employment. In general, the nonfarm op-
ployer for these expenses within a reason-
tional method is intended to permit continued
If you are a member of the clergy, you must
able period of time.
coverage for social security and Medicare pur-
include in your income offerings and fees you
•
You must return any excess reimburse-
poses when your income for the tax year is low.
receive for marriages, baptisms, funerals,
ment or allowance within a reasonable pe-
masses, etc., in addition to your salary. If the
You may use the nonfarm optional method if
riod of time.
offering is made to the religious institution, it is
you meet all the following tests.
not taxable to you.
The reimbursement is not reported on your
1. You are self-employed on a regular basis.
Form W-2. Generally, if your expenses equal
This means that your actual net earnings
your reimbursement, you have no deduction. If
Outside Earnings
from self-employment were $400 or more
your expenses are more than your reimburse-
in at least 2 of the 3 tax years before the
ment, you can deduct your excess expenses for
If you are a member of a religious organization
one for which you use this method. The
SE tax and income tax purposes.
and you give your outside earnings to the organ-
net earnings can be from either farm or
ization, you still must include the earnings in
nonfarm earnings or both.
Nonaccountable plan. A nonaccountable
your income. However, you may be entitled to a
plan is a reimbursement arrangement that does
2. You have used this method less than 5
charitable contribution deduction for the amount
not meet all three of the rules listed under Ac-
years. (There is a 5-year lifetime limit.) The
paid to the organization. For more information,
countable plans, above. In addition, even if your
years do not have to be consecutive.
see Publication 526.
employer has an accountable plan, the following
3. Your net nonfarm profits were:
payments will be treated as being paid under a
nonaccountable plan.
Exclusion of Rental Allowance and
a. Less than $4,851, and
•
Fair Rental Value of a Parsonage
Excess reimbursements you fail to return
b. Less than 72.189% of your gross non-
to your employer.
farm income.
Ordained, commissioned, or licensed ministers
•
Reimbursement of nondeductible ex-
of the gospel may be able to exclude from in-
penses related to your employer’s busi-
If you meet the three tests, use Table 3 to
come tax the rental allowance or fair rental value
ness.
figure your net earnings from self-employment
of a parsonage that is provided to them as pay
for their services. Services include:
under the nonfarm optional method.
Your employer will combine any reimburse-
•
Ministerial
services, discussed earlier,
ment paid to you under a nonaccountable plan
Table 3. Figuring Nonfarm Net
with your wages, salary, or other compensation
•
Earnings
Administrative duties and teaching at theo-
and report the combined total in box 1 of your
logical seminaries, and
Form W-2. Since reimbursements under a
IF your gross
•
The ordinary duties of a minister per-
nonaccountable plan are included in your gross
nonfarm
THEN your net earnings
formed as an employee of the United
income, you can deduct your related expenses
income is ...
are equal to ...
States (other than as a chaplain in the
(for SE tax and income tax purposes) regardless
$6,720 or less
Two-thirds of your gross
Armed Forces), a state, possession, politi-
of whether they are more than, less than, or
nonfarm income.
cal subdivision, or the District of Columbia.
equal to your reimbursement.
For more information on accountable and
More than
$4,480.
This exclusion applies only for income tax
nonaccountable plans, see Publication 463,
$6,720
purposes. It does not apply for SE tax purposes,
Travel, Entertainment, Gift, and Car Expenses.
as discussed earlier under
Amounts included in
gross income
under Self-Employment Tax: Fig-
Husband and Wife
uring Net Earnings.
Actual net earnings. Multiply your total earn-
Missionary Team
ings subject to SE tax by 92.35% (.9235) to get
Designation requirement. The church or or-
actual net earnings. Actual net earnings are
ganization that employs you must officially des-
If a husband and wife are both duly ordained,
equivalent to net earnings under the “Regular
ignate the payment as a housing allowance
commissioned, or licensed ministers of a church
Method.”
before the payment is made. A definite amount
and have an agreement that each will perform
must be designated. The amount of the housing
specific services for which they are paid jointly or
allowance cannot be determined at a later date.
s e p a r a t e l y ,
t h e y
m u s t
d i v i d e
t h e
More information. For more information on
If you are employed and paid by a local
self-employment income according to the
the nonfarm optional method, see Publication
congregation, a resolution by a national church
agreement.
334, Tax Guide for Small Business, and the
agency of your denomination does not effec-
If the agreement is with one spouse only and
Schedule SE (Form 1040) instructions.
tively designate a housing allowance for you.
the other spouse is not paid for any specific
The local congregation must officially designate
duties, amounts received for their services are
the part of your salary that is to be a housing
included only in the self-employment income of
allowance. However, a resolution of a national
Income Tax:
the spouse having the agreement.
church agency can designate your housing al-
lowance if you are directly employed by the
Income and Expenses
Maximum Earnings Subject
national agency. If no part has been officially
to SE Tax
designated, you must include your total salary in
Some income and expense items are treated
your income.
the same for both income tax and SE tax pur-
For 2011, the maximum net earnings from
self-employment subject to social security (old
poses and some are treated differently.
Rental allowances. If you receive in your sal-
age, survivors, and disability insurance) tax is
ary an amount officially designated as a rental
Note. For purposes of this section, refer-
$106,800 minus any wages and tips you earned
allowance (including an amount to pay utility
ences to members of the clergy are only to
that were subject to social security tax. The tax
costs), you can exclude the allowance from your
rate for the social security part is 10.4%. In
ministers or members of a religious order.
gross income if:
Page 8
Publication 517 (2011)
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