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1040nr Publication 517 - Main Content Table of Contents Social Security CoverageCoverage of Members of the Clergy Coverage of Religious Workers (Church Employees) U. 1040nr S. 1040nr Citizens and Resident and Nonresident Aliens Ministerial ServicesMinisters Members of Religious Orders Christian Science Practitioners and Readers Exemption From Self-Employment (SE) TaxMembers of the Clergy Members of Recognized Religious Sects Self-Employment Tax: Figuring Net EarningsRegular Method Nonfarm Optional Method Income Tax: Income and ExpensesIncome Items Expense Items Income Tax Withholding and Estimated Tax Filing Your Return Retirement Savings ArrangementsDeducting contributions to tax-sheltered annuity plans. 1040nr Full-time student. 1040nr Adjusted gross income. 1040nr More information. 1040nr Earned Income Credit Comprehensive ExampleForm W-2 From Church Form W-2 From College Schedule C-EZ (Form 1040) Form 2106-EZ Schedule A (Form 1040) Schedule SE (Form 1040) Form 1040 Attachment 1 Attachment 2 How To Get Tax HelpLow Income Taxpayer Clinics Social Security Coverage This section gives information about which system (SECA or FICA) is used to collect social security and Medicare taxes from members of the clergy (ministers, members of a religious order, and Christian Science practitioners and readers) and religious workers (church employees). 1040nr Coverage of Members of the Clergy The services you perform in the exercise of your ministry, of the duties required by your religious order, or of your profession as a Christian Science practitioner or reader are covered by social security and Medicare under SECA. 1040nr Your earnings for these ministerial services (defined later) are subject to self-employment (SE) tax unless one of the following applies. 1040nr You are a member of a religious order who has taken a vow of poverty. 1040nr You ask the Internal Revenue Service (IRS) for an exemption from SE tax for your services and the IRS approves your request. 1040nr See Exemption From Self-Employment (SE) Tax , later. 1040nr You are subject only to the social security laws of a foreign country under the provisions of a social security agreement between the United States and that country. 1040nr For more information, see Bilateral Social Security (Totalization) Agreements in Publication 54. 1040nr Your earnings that are not from ministerial services may be subject to social security tax under FICA or SECA according to the rules that apply to taxpayers in general. 1040nr See Ministerial Services , later. 1040nr Ministers If you are a minister of a church, your earnings for the services you perform in your capacity as a minister are subject to SE tax, even if you perform these services as an employee of that church. 1040nr However, you can request that the IRS grant you an exemption, as discussed under Exemption From Self-Employment (SE) Tax , later. 1040nr For the specific services covered, see Ministerial Services , later. 1040nr Ministers defined. 1040nr   Ministers are individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination. 1040nr Ministers have the authority to conduct religious worship, perform sacerdotal functions, and administer ordinances or sacraments according to the prescribed tenets and practices of that church or denomination. 1040nr   If a church or denomination ordains some ministers and licenses or commissions others, anyone licensed or commissioned must be able to perform substantially all the religious functions of an ordained minister to be treated as a minister for social security purposes. 1040nr Employment status for other tax purposes. 1040nr   Even though all of your income from performing ministerial services is subject to self-employment tax for social security tax purposes, you may be an employee for income tax or retirement plan purposes in performing those same services. 1040nr For income tax or retirement plan purposes, your income earned as an employee will be considered wages. 1040nr Common-law employee. 1040nr   Under common-law rules, you are considered either an employee or a self-employed person. 1040nr Generally, you are an employee if you perform services for someone who has the legal right to control both what you do and how you do it, even if you have considerable discretion and freedom of action. 1040nr For more information about the common-law rules, see Publication 15-A, Employer's Supplemental Tax Guide. 1040nr   If a congregation employs you and pays you a salary, you are generally a common-law employee and income from the exercise of your ministry is wages for income tax purposes. 1040nr However, amounts received directly from members of the congregation, such as fees for performing marriages, baptisms, or other personal services, are not wages; such amounts are self-employment income for both income tax purposes and social security tax purposes. 1040nr Example. 1040nr A church hires and pays you a salary to perform ministerial services subject to its control. 1040nr Under the common-law rules, you are an employee of the church while performing those services. 1040nr Form SS-8. 1040nr   If you are not certain whether you are an employee or a self-employed person, you can get a determination from the IRS by filing Form SS-8. 1040nr Members of Religious Orders If you are a member of a religious order who has not taken a vow of poverty, your earnings for ministerial services you perform as a member of the order are subject to SE tax. 1040nr See Ministerial Services , later. 1040nr However, you can request that the IRS grant you an exemption as discussed under Exemption From Self-Employment (SE) Tax , later. 1040nr Vow of poverty. 1040nr   If you are a member of a religious order and have taken a vow of poverty, you are already exempt from paying SE tax on your earnings for ministerial services you perform as an agent of your church or its agencies. 1040nr You do not need to request a separate exemption. 1040nr For income tax purposes, the earnings are tax free to you. 1040nr Your earnings are considered the income of the religious order. 1040nr Services covered under FICA at the election of the order. 1040nr   However, even if you have taken a vow of poverty, the services you perform for your church or its agencies may be covered under social security. 1040nr Your services are covered if your order, or an autonomous subdivision of the order, elects social security coverage for its current and future vow-of-poverty members. 1040nr   The order or subdivision elects coverage by filing Form SS-16. 1040nr The election may cover certain vow-of-poverty members for a retroactive period of up to 20 calendar quarters before the quarter in which it files the certificate. 1040nr If the election is made, the order or subdivision pays both the employer's and employee's share of the tax. 1040nr You do not pay any of the FICA tax. 1040nr Services performed outside the order. 1040nr   Even if you are a member of a religious order who has taken a vow of poverty and the order requires you to turn over amounts you earn, your earnings are subject to federal income tax and either SE tax or FICA tax (including estimated tax payments and/or withholding) if you: Are self-employed or an employee of an organization outside your religious community, and Perform work not required by, or done on behalf of, the order. 1040nr   In these cases, your income from self-employment or as an employee of that outside organization is taxable to you directly. 1040nr You may, however, be able to take a charitable deduction for the amount you turn over to the order. 1040nr See Publication 526, Charitable Contributions. 1040nr Rulings. 1040nr   Organizations and individuals may request rulings from the IRS on whether they are religious orders, or members of a religious order, respectively, for FICA tax, SE tax, and federal income tax withholding purposes. 1040nr To request a ruling, follow the procedures in Revenue Procedure 2014-1, 2014-1 I. 1040nr R. 1040nr B. 1040nr 1, available at www. 1040nr irs. 1040nr gov/irb/2014-1_IRB/ar05. 1040nr html. 1040nr Christian Science Practitioners and Readers Generally, your earnings from services you perform in your profession as a Christian Science practitioner or reader are subject to SE tax. 1040nr However, you can request an exemption as discussed under Exemption From Self-Employment (SE) Tax , later. 1040nr Practitioners. 1040nr   Christian Science practitioners are members in good standing of the Mother Church, The First Church of Christ, Scientist, in Boston, Massachusetts, who practice healing according to the teachings of Christian Science. 1040nr State law specifically exempts Christian Science practitioners from licensing requirements. 1040nr   Some Christian Science practitioners also are Christian Science teachers or lecturers. 1040nr Income from teaching or lecturing is considered the same as income from their work as practitioners. 1040nr Readers. 1040nr   For tax purposes, Christian Science readers are considered the same as ordained, commissioned, or licensed ministers. 1040nr Coverage of Religious Workers (Church Employees) If you are a religious worker (a church employee) and are not in one of the classes already discussed, your wages are generally subject to social security and Medicare tax under FICA, not SECA. 1040nr Some exceptions are discussed next. 1040nr Election by Church To Exclude Its Employees From FICA Coverage Churches and qualified church-controlled organizations (church organizations) that are opposed for religious reasons to the payment of social security and Medicare taxes can elect to exclude their employees from FICA coverage. 1040nr If your employer makes this election, it does not pay the employer's portion of the FICA taxes or withhold from your pay your portion of the FICA taxes. 1040nr Instead, your wages are subject to SECA and you must pay SE tax on your wages if they exceed $108. 1040nr 28 during the tax year. 1040nr However, you can request an exemption from SE tax if you are a member of a recognized religious sect, as discussed below. 1040nr Churches and church organizations make this election by filing two copies of Form 8274. 1040nr For more information about making this election, see Form 8274. 1040nr Election by Certain Church Employees Who Are Opposed to Social Security and Medicare You may be able to choose to be exempt from social security and Medicare taxes, including the SE tax, if you are a member of a recognized religious sect or division and work for a church (or church-controlled nonprofit division) that does not pay the employer's part of the social security tax on wages. 1040nr This exemption does not apply to your service, if any, as a minister of a church or as a member of a religious order. 1040nr Make this choice by filing Form 4029. 1040nr See Requesting Exemption—Form 4029 , later, under Members of Recognized Religious Sects. 1040nr U. 1040nr S. 1040nr Citizens and Resident and Nonresident Aliens To be covered under the SE tax provisions (SECA), individuals generally must be citizens or resident aliens of the United States. 1040nr Nonresident aliens are not covered under SECA unless a social security agreement in effect between the United States and the foreign country determines that you are covered under the U. 1040nr S. 1040nr social security system. 1040nr To determine your alien status, see Publication 519, U. 1040nr S. 1040nr Tax Guide for Aliens. 1040nr Residents of Puerto Rico, the U. 1040nr S. 1040nr Virgin Islands, Guam, the CNMI, and American Samoa. 1040nr   If you are a resident of one of these U. 1040nr S. 1040nr possessions but not a U. 1040nr S. 1040nr citizen, for SE tax purposes you are treated the same as a citizen or resident alien of the United States. 1040nr For information on figuring the tax, see Self-Employment Tax: Figuring Net Earnings , later. 1040nr Ministerial Services Ministerial services, in general, are the services you perform in the exercise of your ministry, in the exercise of your duties as required by your religious order, or in the exercise of your profession as a Christian Science practitioner or reader. 1040nr Income you receive for performing ministerial services is subject to SE tax unless you have an exemption as explained later. 1040nr Even if you have an exemption, only the income you receive for performing ministerial services is exempt. 1040nr The exemption does not apply to any other income. 1040nr The following discussions provide more detailed information on ministerial services of ministers, members of a religious order, and Christian Science practitioners and readers. 1040nr Ministers Most services you perform as a minister, priest, rabbi, etc. 1040nr , are ministerial services. 1040nr These services include: Performing sacerdotal functions, Conducting religious worship, and Controlling, conducting, and maintaining religious organizations (including the religious boards, societies, and other integral agencies of such organizations) that are under the authority of a religious body that is a church or denomination. 1040nr You are considered to control, conduct, and maintain a religious organization if you direct, manage, or promote the organization's activities. 1040nr A religious organization is under the authority of a religious body that is a church or denomination if it is organized for and dedicated to carrying out the principles of a faith according to the requirements governing the creation of institutions of the faith. 1040nr Services for nonreligious organizations. 1040nr   Your services for a nonreligious organization are ministerial services if the services are assigned or designated by your church. 1040nr Assigned or designated services qualify even if they do not involve performing sacerdotal functions or conducting religious worship. 1040nr   If your services are not assigned or designated by your church, they are ministerial services only if they involve performing sacerdotal functions or conducting religious worship. 1040nr Services that are not part of your ministry. 1040nr   Income from services you perform as an employee that are not ministerial services is subject to social security and Medicare tax withholding under FICA (not SECA) under the rules that apply to employees in general. 1040nr The following are not ministerial services. 1040nr Services you perform for nonreligious organizations other than the services stated above. 1040nr Services you perform as a duly ordained, commissioned, or licensed minister of a church as an employee of the United States, the District of Columbia, a foreign government, or any of their political subdivisions. 1040nr These services are not ministerial services even if you are performing sacerdotal functions or conducting religious worship. 1040nr (For example, if you perform services as a chaplain in the Armed Forces of the United States, those services are not ministerial services. 1040nr ) Services you perform in a government-owned and operated hospital. 1040nr (These services are considered performed by a government employee, not by a minister as part of the ministry. 1040nr ) However, services that you perform at a church-related hospital or health and welfare institution, or a private nonprofit hospital, are considered to be part of the ministry and are considered ministerial services. 1040nr Books or articles. 1040nr   Writing religious books or articles is considered to be in the exercise of your ministry and is considered a ministerial service. 1040nr   This rule also applies to members of religious orders and to Christian Science practitioners and readers. 1040nr Members of Religious Orders Services you perform as a member of a religious order in the exercise of duties required by the order are ministerial services. 1040nr The services are considered ministerial because you perform them as an agent of the order. 1040nr For example, if the order directs you to perform services for another agency of the supervising church or an associated institution, you are considered to perform the services as an agent of the order. 1040nr However, if the order directs you to work outside the order, this employment will not be considered a duty required by the order unless: Your services are the kind that are ordinarily performed by members of the order, and Your services are part of the duties that must be exercised for, or on behalf of, the religious order as its agent. 1040nr Effect of employee status. 1040nr   Ordinarily, if your services are not considered directed or required of you by the order, you and the outside party for whom you work are considered employee and employer. 1040nr In this case, your earnings from the services are taxed under the rules that apply to employees in general, not under the rules for services provided as agent for the order. 1040nr This result is true even if you have taken a vow of poverty. 1040nr Example. 1040nr Pat Brown and Chris Green are members of a religious order and have taken vows of poverty. 1040nr They renounce all claims to their earnings. 1040nr The earnings belong to the order. 1040nr Pat is a licensed attorney. 1040nr The superiors of the order instructed her to get a job with a law firm. 1040nr Pat joined a law firm as an employee and, as she requested, the firm made the salary payments directly to the order. 1040nr Chris is a secretary. 1040nr The superiors of the order instructed him to accept a job with the business office of the church that supervises the order. 1040nr Chris took the job and gave all his earnings to the order. 1040nr Pat's services are not duties required by the order. 1040nr Her earnings are subject to social security and Medicare tax under FICA and to federal income tax. 1040nr Chris' services are duties required by the order. 1040nr He is acting as an agent of the order and not as an employee of a third party. 1040nr He does not include the earnings in gross income, and they are not subject to income tax withholding or to social security and Medicare tax under FICA or SECA. 1040nr Christian Science Practitioners and Readers Services you perform as a Christian Science practitioner or reader in the exercise of your profession are ministerial services. 1040nr Amounts you receive for performing these services are generally subject to SE tax. 1040nr You may request an exemption from SE tax, discussed next, which applies only to those services. 1040nr Exemption From Self-Employment (SE) Tax You can request an exemption from SE tax if you are a member of the clergy (minister, member of a religious order, or Christian Science practitioner or reader) or a member of a recognized religious sect. 1040nr Generally, members of religious orders who have taken a vow of poverty are already exempt from paying SE tax, as discussed earlier under Members of Religious Orders under Social Security Coverage. 1040nr They do not have to request the exemption. 1040nr Who cannot be exempt. 1040nr   You cannot be exempt from SE tax if you made one of the following elections to be covered under social security. 1040nr These elections are irrevocable. 1040nr You elected to be covered under social security by filing Form 2031, Revocation of Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders, and Christian Science Practitioners, for your 1986, 1987, 2000, or 2001 tax year. 1040nr You elected before 1968 to be covered under social security for your ministerial services. 1040nr Requesting exemption. 1040nr    Table 2, earlier, briefly summarizes the procedure for requesting exemption from the SE tax. 1040nr More detailed explanations follow. 1040nr If you are a minister, member of a religious order, or Christian Science practitioner, an approved exemption only applies to earnings you receive for ministerial services, discussed earlier. 1040nr It does not apply to any other self-employment income. 1040nr Table 2. 1040nr The Self-Employment Tax Exemption Application and Approval Process   Who Can Apply Members of the Clergy Members of Recognized  Religious Sects How File Form 4361 File Form 4029 When File by the due date (including extensions) of your income tax return for the second tax year in which you had at least $400 of net earnings from self-employment (at least part from ministerial services) File anytime Approval If approved, you will receive an approved copy of Form 4361 If approved, you will receive an approved copy of Form 4029 Effective Date For all tax years after 1967 in which you have at least $400 of net earnings from self-employment For all tax years beginning with the first year you meet the eligibility requirements discussed later Members of the Clergy To claim the exemption from SE tax, you must meet all of the following conditions. 1040nr You file Form 4361, described below under Requesting Exemption—Form 4361 . 1040nr You are conscientiously opposed to public insurance because of your individual religious considerations (not because of your general conscience), or you are opposed because of the principles of your religious denomination. 1040nr You file for other than economic reasons. 1040nr You inform the ordaining, commissioning, or licensing body of your church or order that you are opposed to public insurance if you are a minister or a member of a religious order (other than a vow-of-poverty member). 1040nr This requirement does not apply to Christian Science practitioners or readers. 1040nr You establish that the organization that ordained, commissioned, or licensed you, or your religious order, is a tax-exempt religious organization. 1040nr You establish that the organization is a church or a convention or association of churches. 1040nr You did not make an election discussed earlier under Who cannot be exempt . 1040nr You sign and return the statement the IRS mails to you to certify that you are requesting an exemption based on the grounds listed on the statement. 1040nr Requesting Exemption—Form 4361 To request exemption from SE tax, file Form 4361 in triplicate (original and two copies) with the IRS. 1040nr The IRS will return to you a copy of the Form 4361 that you filed indicating whether it has approved your exemption. 1040nr If it is approved, keep the approved copy of Form 4361 in your permanent records. 1040nr When to file. 1040nr   File Form 4361 by the date your income tax return is due, including extensions, for the second tax year in which both of the following are true. 1040nr You have net earnings from self-employment of at least $400. 1040nr Any part of those net earnings was from ministerial services you performed as a: Minister, Member of a religious order, or Christian Science practitioner or reader. 1040nr The 2 years do not have to be consecutive tax years. 1040nr    The approval process can take some time, so you should file Form 4361 as soon as possible. 1040nr Example 1. 1040nr Rev. 1040nr Lawrence Jaeger, a clergyman ordained in 2013, has net self-employment earnings as a minister of $450 in 2013 and $500 in 2014. 1040nr He must file his application for exemption by the due date, including extensions, for his 2014 income tax return. 1040nr However, if Rev. 1040nr Jaeger does not receive IRS approval for an exemption by April 15, 2015, his SE tax for 2014 is due by that date. 1040nr Example 2. 1040nr Rev. 1040nr Louise Wolfe has only $300 in net self-employment earnings as a minister in 2013, but earned more than $400 in 2012 and expects to earn more than $400 in 2014. 1040nr She must file her application for exemption by the due date, including extensions, for her 2014 income tax return. 1040nr However, if she does not receive IRS approval for an exemption by April 15, 2015, her SE tax for 2014 is due by that date. 1040nr Example 3. 1040nr In 2011, Rev. 1040nr David Moss was ordained a minister and had $700 in net self-employment earnings as a minister. 1040nr In 2012, he received $1,000 as a minister, but his related expenses were over $1,000. 1040nr Therefore, he had no net self-employment earnings as a minister in 2012. 1040nr Also in 2012, he opened a book store and had $8,000 in net self-employment earnings from the store. 1040nr In 2013, he had net self-employment earnings of $1,500 as a minister and $10,000 net self-employment earnings from the store. 1040nr Rev. 1040nr Moss had net earnings from self-employment in 2011 and 2013 that were $400 or more each year, and part of the self-employment earnings in each of those years was for his services as a minister. 1040nr Thus, he must file his application for exemption by the due date, including extensions, for his 2013 income tax return. 1040nr Death of individual. 1040nr   The right to file an application for exemption ends with an individual's death. 1040nr A surviving spouse, executor, or administrator cannot file an exemption application for a deceased clergy member. 1040nr Effective date of exemption. 1040nr   An approved exemption is effective for all tax years after 1967 in which you have $400 or more of net earnings from self-employment and any part of those earnings is for services as a member of the clergy. 1040nr Once the exemption is approved, it is irrevocable. 1040nr Example. 1040nr Rev. 1040nr Trudy Austin, ordained in 2010, had $400 or more in net self-employment earnings as a minister in both 2010 and 2013. 1040nr She files an application for exemption on February 20, 2014. 1040nr If an exemption is granted, it is effective for 2010 and the following years. 1040nr Refunds of SE tax. 1040nr   If, after receiving an approved Form 4361, you find that you overpaid SE tax, you can file a claim for refund on Form 1040X. 1040nr Generally, for a refund, you must file Form 1040X within 3 years from the date you filed the return or within 2 years from the date you paid the tax, whichever is later. 1040nr A return you filed, or tax you paid, before the due date is considered to have been filed or paid on the due date. 1040nr   If you file a claim after the 3-year period but within 2 years from the time you paid the tax, the credit or refund will not be more than the tax you paid within the 2 years immediately before you file the claim. 1040nr Members of Recognized Religious Sects If you are a member of a recognized religious sect, or a division of a recognized religious sect, you can apply for an exemption from payment of social security and Medicare taxes on both your self-employment income and the wages you earn from an employer who also has an exemption. 1040nr Exception. 1040nr   If you received social security benefits or payments, or anyone else received these benefits or payments based on your wages or self-employment income, you cannot apply. 1040nr However, if you pay your benefits back, you may be considered for exemption. 1040nr Contact your local Social Security Administration office to find out the amount you must pay back. 1040nr Eligibility requirements. 1040nr   To claim this exemption from SE tax, all the following requirements must be met. 1040nr You must file Form 4029, discussed later under Requesting Exemption—Form 4029 . 1040nr As a follower of the established teachings of the sect or division, you must be conscientiously opposed to accepting benefits of any private or public insurance that makes payments for death, disability, old age, retirement, or medical care, or provides services for medical care. 1040nr You must waive all rights to receive any social security payment or benefit and agree that no benefits or payments will be made to anyone else based on your wages and self-employment income. 1040nr The Commissioner of Social Security must determine that: Your sect or division has the established teachings as described in (2) above, It is the practice, and has been for a substantial period of time, for members of the sect or division to provide for their dependent members in a manner that is reasonable in view of the members' general level of living, and The sect or division has existed at all times since December 31, 1950. 1040nr Requesting Exemption—Form 4029 To request the exemption, file Form 4029 in triplicate (original and two copies) with the Social Security Administration at the address shown on the form. 1040nr The sect or division must complete part of the form. 1040nr The IRS will return to you a copy of the Form 4029 that you filed indicating whether it has approved your exemption. 1040nr If it is approved, keep the approved copy of Form 4029 in your permanent records. 1040nr When to file. 1040nr   You can file Form 4029 at any time. 1040nr   If you have an approved exemption from SE tax and for some reason that approved exemption ended, you must file a new Form 4029 if you subsequently meet the eligibility requirements, discussed earlier. 1040nr See Effective date of exemption next for information on when the newly approved exemption would become effective. 1040nr    If you have a previously approved exemption from SE tax and you change membership to another recognized religious sect, without any change to your eligibility requirements, then you do not need to file a new Form 4029. 1040nr Effective date of exemption. 1040nr   An approved exemption from SE tax generally is effective for all tax years beginning with the first year you meet the eligibility requirements discussed earlier. 1040nr (For example, if you meet the eligibility requirements in 2011, you file Form 4029 in 2012, and the IRS approves your exemption in 2013, your exemption is effective for tax year 2011 and all later years. 1040nr )   The exemption will end if you fail to meet the eligibility requirements or if the Commissioner of Social Security determines that the sect or division fails to meet them. 1040nr You must notify the IRS within 60 days if you are no longer a member of the religious group, or if you no longer follow the established teachings of this group. 1040nr The exemption will end for the tax year where you or your sect/division first fails to meet the eligibility requirements. 1040nr Refunds of SE tax paid. 1040nr    To get a refund of any SE tax you paid while the exemption was in effect, file Form 1040X. 1040nr For information on filing this form, see Refunds of SE tax under Requesting Exemption—Form 4361, earlier. 1040nr Exemption From FICA Taxes Generally, under FICA, the employer and the employee each pay half of the social security and Medicare tax. 1040nr Both the employee and the employer, if they meet the eligibility requirements discussed earlier, can apply to be exempt from their share of FICA taxes on wages paid by the employer to the employee. 1040nr A partnership in which each partner holds a religious exemption from social security and Medicare is an employer for this purpose. 1040nr If the employer's application is approved, the exemption will apply only to FICA taxes on wages paid to employees who also received an approval of identical applications. 1040nr Information for employers. 1040nr   If you have an approved Form 4029 and you have an employee who has an approved Form 4029, do not report wages you paid to the employee as social security and Medicare wages. 1040nr   If you have an employee who does not have an approved Form 4029, you must withhold the employee's share of social security and Medicare taxes and pay the employer's share. 1040nr Form W-2. 1040nr   When preparing a Form W-2 for an employee with an approved Form 4029, enter “Form 4029” in box 14, “Other. 1040nr ” Do not make any entries in boxes 3, 4, 5, or 6. 1040nr Forms 941, 943, and 944. 1040nr   If both you and your employee have received approved Forms 4029, do not include these exempt wages on the following forms. 1040nr Instead, follow the instructions given below. 1040nr Form 941, Employer's QUARTERLY Federal Tax Return: check the box on line 4 and enter “Form 4029” in the empty space below the check box. 1040nr Form 943, Employer's Annual Federal Tax Return for Agricultural Employees: enter “Form 4029” on the dotted line next to the lines 2 and 4 entry spaces. 1040nr Form 944, Employer's ANNUAL Federal Tax Return: check the box on line 3 and enter “Form 4029” in the empty space below the check box. 1040nr Effective date. 1040nr   An approved exemption from FICA becomes effective on the first day of the first calendar quarter after the quarter in which you file Form 4029. 1040nr The exemption will end on the last day of the calendar quarter before the quarter in which the employer, employee, sect, or division fails to meet the requirements. 1040nr Self-Employment Tax: Figuring Net Earnings There are two methods for figuring your net earnings from self-employment as a member of the clergy or a religious worker. 1040nr Regular method. 1040nr Nonfarm optional method. 1040nr You may find Worksheets 1 through 4 helpful in figuring your net earnings from self-employment. 1040nr Blank worksheets are in the back of this publication, after the Comprehensive Example. 1040nr Regular Method Most people use the regular method. 1040nr Under this method, figure your net earnings from self-employment by totaling your gross income for services you performed as a minister, a member of a religious order who has not taken a vow of poverty, or a Christian Science practitioner or reader. 1040nr Then, subtract your allowable business deductions and multiply the difference by 92. 1040nr 35% (. 1040nr 9235). 1040nr Use Schedule SE (Form 1040) to figure your net earnings and SE tax. 1040nr If you are an employee of a church that elected to exclude you from FICA coverage, figure net earnings by multiplying your church wages shown on Form W-2 by 92. 1040nr 35% (. 1040nr 9235). 1040nr Do not reduce your wages by any business deductions when making this computation. 1040nr Use Schedule SE (Form 1040), Section B, to figure your net earnings and SE tax. 1040nr If you have an approved exemption, or you are automatically exempt, do not include the income or deductions from ministerial services in figuring your net earnings from self-employment. 1040nr Amounts included in gross income. 1040nr   To figure your net earnings from self-employment (on Schedule SE (Form 1040)), include in gross income: Salaries and fees for your ministerial services (discussed earlier), Offerings you receive for marriages, baptisms, funerals, masses, etc. 1040nr , The value of meals and lodging provided to you, your spouse, and your dependents for your employer's convenience, The fair rental value of a parsonage provided to you (including the cost of utilities that are furnished) and the rental allowance (including an amount for payment of utilities) paid to you, and Any amount a church pays toward your income tax or SE tax, other than withholding the amount from your salary. 1040nr This amount is also subject to income tax. 1040nr   For the income tax treatment of items (2) and (4), see Income Tax: Income and Expenses , later. 1040nr Example. 1040nr Pastor Roger Adams receives an annual salary of $39,000 as a full-time minister. 1040nr The $39,000 includes $5,000 that is designated as a rental allowance to pay utilities. 1040nr His church owns a parsonage that has a fair rental value of $12,000 per year. 1040nr The church gives Pastor Adams the use of the parsonage. 1040nr He is not exempt from SE tax. 1040nr He must include $51,000 ($39,000 plus $12,000) when figuring his net earnings for SE tax purposes. 1040nr The results would be the same if, instead of the use of the parsonage and receipt of the rental allowance for utilities, Pastor Adams had received an annual salary of $51,000 of which $17,000 ($5,000 plus $12,000) per year was designated as a rental allowance. 1040nr Overseas duty. 1040nr   Your net earnings from self-employment are determined without any foreign earned income exclusion or the foreign housing exclusion or deduction if you are a U. 1040nr S. 1040nr citizen or resident alien serving abroad and living in a foreign country. 1040nr   For information on excluding foreign earned income or the foreign housing amount, see Publication 54. 1040nr Example. 1040nr Diane Jones was the minister of a U. 1040nr S. 1040nr church in Mexico. 1040nr She earned $35,000 in that position and was able to exclude it all for income tax purposes under the foreign earned income exclusion. 1040nr The United States does not have a social security agreement with Mexico, so Mrs. 1040nr Jones is subject to U. 1040nr S. 1040nr SE tax and must include $35,000 when figuring net earnings from self-employment. 1040nr Specified U. 1040nr S. 1040nr possessions. 1040nr    The exclusion from gross income for amounts derived from American Samoa or Puerto Rico does not apply in computing net earnings from self-employment. 1040nr Also see Residents of Puerto Rico, the U. 1040nr S. 1040nr Virgin Islands, Guam, the CNMI, and American Samoa , earlier, under U. 1040nr S. 1040nr Citizens and Resident and Nonresident Aliens. 1040nr Amounts not included in gross income. 1040nr   Do not include the following amounts in gross income when figuring your net earnings from self-employment. 1040nr Offerings that others made to the church. 1040nr Contributions by your church to a tax-sheltered annuity plan set up for you, including any salary reduction contributions (elective deferrals) that are not included in your gross income. 1040nr Pension payments or retirement allowances you receive for your past ministerial services. 1040nr The rental value of a parsonage or a parsonage allowance provided to you after you retire. 1040nr Allowable deductions. 1040nr   When figuring your net earnings from self-employment, deduct all your expenses related to your ministerial services performed as a self-employed person. 1040nr These are ministerial expenses you incurred while working other than as a common-law employee of the church. 1040nr They include expenses incurred in performing marriages and baptisms, and in delivering speeches. 1040nr Deduct these expenses on Schedule C or C-EZ (Form 1040), and carry the net amount to line 2 of Schedule SE (Form 1040), Section A or B. 1040nr   Wages earned as a common-law employee (explained earlier) of a church are generally subject to self-employment tax unless an exemption is requested, as discussed earlier under Exemption From Self-Employment (SE) Tax . 1040nr Subtract any allowable expenses (including unreimbursed employee business expenses) from those wages, include the net amount on line 2 of Schedule SE (Form 1040), Section A or B, and attach an explanation. 1040nr Do not complete Schedule C or C-EZ (Form 1040). 1040nr However, for income tax purposes, the expenses are allowed only as an itemized deduction on Schedule A (Form 1040) to the extent they exceed 2% of adjusted gross income. 1040nr Employee reimbursement arrangements. 1040nr   If you received an advance, allowance, or reimbursement for your employee expenses, how you report this amount and your employee expenses depends on whether your employer reimbursed you under an accountable plan or a nonaccountable plan. 1040nr Ask your employer if you are not sure if it reimburses you using an accountable or a nonaccountable plan. 1040nr Accountable plans. 1040nr   To be an accountable plan, your employer's reimbursement arrangement must include all three of the following rules. 1040nr Your expenses must have a business connection—that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer. 1040nr You must adequately account to your employer for these expenses within a reasonable period of time. 1040nr You must return any excess reimbursement or allowance within a reasonable period of time. 1040nr   The reimbursement is not reported on your Form W-2. 1040nr Generally, if your expenses equal your reimbursement, you have no deduction. 1040nr If your expenses are more than your reimbursement, you can deduct your excess expenses for SE tax and income tax purposes. 1040nr Nonaccountable plan. 1040nr   A nonaccountable plan is a reimbursement arrangement that does not meet all three of the rules listed under Accountable plans above. 1040nr In addition, even if your employer has an accountable plan, the following payments will be treated as being paid under a nonaccountable plan. 1040nr Excess reimbursements you fail to return to your employer. 1040nr Reimbursement of nondeductible expenses related to your employer's business. 1040nr   Your employer will combine any reimbursement paid to you under a nonaccountable plan with your wages, salary, or other compensation and report the combined total in box 1 of your Form W-2. 1040nr Since reimbursements under a nonaccountable plan are included in your gross income, you can deduct your related expenses (for SE tax and income tax purposes) regardless of whether they are more than, less than, or equal to your reimbursement. 1040nr   For more information on accountable and nonaccountable plans, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. 1040nr Married Couple Missionary Team If both spouses are duly ordained, commissioned, or licensed ministers of a church and have an agreement that each will perform specific services for which they are paid jointly or separately, they must divide the self-employment income according to the agreement. 1040nr If the agreement is with one spouse only and the other spouse is not paid for any specific duties, amounts received for their services are included only in the self-employment income of the spouse having the agreement. 1040nr Earnings Subject to SE Tax For 2013, the maximum net earnings from self-employment subject to social security (old age, survivors, and disability insurance) tax is $113,700 minus any wages and tips you earned that were subject to social security tax. 1040nr The tax rate for the social security part is 12. 1040nr 4%. 1040nr In addition, all of your net earnings are subject to the Medicare (hospital insurance) part of the SE tax. 1040nr This tax rate is 2. 1040nr 9%. 1040nr The combined self-employment tax rate is 15. 1040nr 3%. 1040nr Additional Medicare Tax. 1040nr   Beginning in 2013, a 0. 1040nr 9% Additional Medicare Tax applies to Medicare wages, railroad retirement (RRTA) compensation, and self-employment income that are more than: $125,000 if married filing separately, $250,000 if married filing jointly, or $200,000 for any other filing status. 1040nr Medicare wages and self-employment income are combined to determine if income exceeds the threshold. 1040nr A self-employment loss is not considered for purposes of this tax. 1040nr RRTA compensation is separately compared to the threshold. 1040nr For more information, see Form 8959, Additional Medicare Tax, and its separate instructions. 1040nr Nonfarm Optional Method You may be able to use the nonfarm optional method for figuring your net earnings from self-employment. 1040nr In general, the nonfarm optional method is intended to permit continued coverage for social security and Medicare purposes when your income for the tax year is low. 1040nr You may use the nonfarm optional method if you meet all the following tests. 1040nr You are self-employed on a regular basis. 1040nr You meet this test if your actual net earnings from self-employment were $400 or more in at least 2 of the 3 tax years before the one for which you use this method. 1040nr The net earnings can be from either farm or nonfarm earnings or both. 1040nr You have used this method less than 5 prior years. 1040nr (There is a 5-year lifetime limit. 1040nr ) The years do not have to be consecutive. 1040nr Your net nonfarm profits were: Less than $5,024, and Less than 72. 1040nr 189% of your gross nonfarm income. 1040nr If you meet all three tests, use Table 3 to figure your net earnings from self-employment under the nonfarm optional method. 1040nr Table 3. 1040nr Figuring Nonfarm Net Earnings IF your gross nonfarm income is . 1040nr . 1040nr . 1040nr THEN your net earnings are equal to . 1040nr . 1040nr . 1040nr $6,960 or less Two-thirds of your gross nonfarm income. 1040nr More than $6,960 $4,640. 1040nr Actual net earnings. 1040nr   Multiply your total earnings subject to SE tax by 92. 1040nr 35% (. 1040nr 9235) to get actual net earnings. 1040nr Actual net earnings are equivalent to net earnings under the “Regular Method. 1040nr ” More information. 1040nr   For more information on the nonfarm optional method, see Publication 334, Tax Guide for Small Business, and the Schedule SE (Form 1040) instructions. 1040nr Income Tax: Income and Expenses Some income and expense items are treated the same for both income tax and SE tax purposes and some are treated differently. 1040nr Note. 1040nr For purposes of this section, references to members of the clergy are only to ministers or members of a religious order. 1040nr Income Items The tax treatment of offerings and fees, outside earnings, rental allowances, rental value of a parsonage, earnings of members of religious orders, and foreign earned income is discussed here. 1040nr Offerings and Fees If you are a member of the clergy, you must include in your income offerings and fees you receive for marriages, baptisms, funerals, masses, etc. 1040nr , in addition to your salary. 1040nr If the offering is made to the religious institution, it is not taxable to you. 1040nr Outside Earnings If you are a member of a religious organization and you give your outside earnings to the organization, you still must include the earnings in your income. 1040nr However, you may be entitled to a charitable contribution deduction for the amount paid to the organization. 1040nr For more information, see Publication 526. 1040nr Exclusion of Rental Allowance and Fair Rental Value of a Parsonage Ordained, commissioned, or licensed ministers of the gospel may be able to exclude from income tax the rental allowance or fair rental value of a parsonage that is provided to them as pay for their services. 1040nr Services include: Ministerial services, discussed earlier, Administrative duties and teaching at theological seminaries, and The ordinary duties of a minister performed as an employee of the United States (other than as a chaplain in the Armed Forces), a state, possession, political subdivision, or the District of Columbia. 1040nr This exclusion applies only for income tax purposes. 1040nr It does not apply for SE tax purposes, as discussed earlier under Amounts included in gross income under Self-Employment Tax: Figuring Net Earnings. 1040nr Designation requirement. 1040nr   The church or organization that employs you must officially designate the payment as a housing allowance before it makes the payment. 1040nr It must designate a definite amount. 1040nr It cannot determine the amount of the housing allowance at a later date. 1040nr If the church or organization does not officially designate a definite amount as a housing allowance, you must include your total salary in your income. 1040nr   If you are employed and paid by a local congregation, a resolution by a national church agency of your denomination does not effectively designate a housing allowance for you. 1040nr The local congregation must officially designate the part of your salary that is a housing allowance. 1040nr However, a resolution of a national church agency can designate your housing allowance if you are directly employed by the national agency. 1040nr Rental allowances. 1040nr   If you receive in your salary an amount officially designated as a rental allowance (including an amount to pay utility costs), you can exclude the allowance from your gross income if: You use the amount to provide or rent a home, and The amount is not more than reasonable pay for your services. 1040nr   The amount you exclude cannot be more than the fair rental value of the home, including furnishings, plus the cost of utilities. 1040nr Fair rental value of parsonage. 1040nr   You can exclude from gross income the fair rental value of a house or parsonage, including utilities, furnished to you as part of your earnings. 1040nr However, the exclusion cannot be more than the reasonable pay for your services. 1040nr If you pay for the utilities, you can exclude any allowance designated for utility costs, up to your actual cost. 1040nr Example. 1040nr Rev. 1040nr Joanna Baker is a full-time minister. 1040nr The church allows her to use a parsonage that has an annual fair rental value of $24,000. 1040nr The church pays her an annual salary of $67,000, of which $7,500 is designated for utility costs. 1040nr Her actual utility costs during the year were $7,000. 1040nr For income tax purposes, Rev. 1040nr Baker excludes $31,000 from gross income ($24,000 fair rental value of the parsonage plus $7,000 from the allowance for utility costs). 1040nr She will report $60,000 ($59,500 salary plus $500 of unused utility allowance). 1040nr Her income for SE tax purposes, however, is $91,000 ($67,000 salary + $24,000 fair rental value of the parsonage). 1040nr Home ownership. 1040nr   If you own your home and you receive as part of your salary a housing or rental allowance, you may exclude from gross income the smallest of: The amount actually used to provide a home, The amount officially designated as a rental allowance, or The fair rental value of the home, including furnishings, utilities, garage, etc. 1040nr Excess rental allowance. 1040nr   You must include in gross income the amount of any rental allowance that is more than the smallest of: Your reasonable salary, The fair rental value of the home plus utilities, or The amount actually used to provide a home. 1040nr   Include in the total on Form 1040, line 7. 1040nr On the dotted line next to line 7, enter “Excess allowance” and the amount. 1040nr You may deduct the home mortgage interest and real estate taxes paid on your home even though you pay all or part of those expenses with funds you get through a tax-free rental or parsonage allowance. 1040nr However, you can only deduct these expenses as itemized deductions on Schedule A (Form 1040). 1040nr Retired ministers. 1040nr   If you are a retired minister, you can exclude from your gross income the rental value of a home (plus utilities) furnished to you by your church as a part of your pay for past services, or the part of your pension that was designated as a rental allowance. 1040nr However, a minister's surviving spouse cannot exclude the rental value unless the rental value is for ministerial services he or she performs or performed. 1040nr Teachers or administrators. 1040nr   If you are a minister employed as a teacher or administrator by a church school, college, or university, you are performing ministerial services for purposes of the housing exclusion. 1040nr However, if you perform services as a teacher or administrator on the faculty of a nonchurch college, you cannot exclude from your income a housing allowance or the value of a home that the college provides to you. 1040nr    If you live in faculty lodging as an employee of an educational institution or academic health center, all or part of the value of that lodging may be nontaxable under a different rule. 1040nr In Publication 525, see Faculty lodging in the discussion on meals and lodging under Fringe Benefits. 1040nr   If you serve as a minister of music or minister of education, or serve in an administrative or other function of your religious organization, but are not authorized to perform substantially all of the religious duties of an ordained minister in your church (even if you are commissioned as a minister of the gospel), the housing exclusion does not apply to you. 1040nr Theological students. 1040nr   If you are a theological student serving a required internship as a part-time or assistant pastor, you cannot exclude a parsonage or rental allowance from your income unless you are ordained, commissioned, or licensed as a minister. 1040nr Traveling evangelists. 1040nr   You can exclude a designated rental allowance from out-of-town churches if you meet all of the following requirements. 1040nr You are an ordained minister. 1040nr You perform ministerial services at churches located away from your community. 1040nr You actually use the rental allowance to maintain your permanent home. 1040nr Cantors. 1040nr   If you have a bona fide commission and your congregation employs you on a full-time basis to perform substantially all the religious functions of the Jewish faith, you can exclude a rental allowance from your gross income. 1040nr Earnings—Members of Religious Orders Your earnings may be exempt from both income tax and SE tax if you are a member of a religious order who: Has taken a vow of poverty, Receives earnings for services performed as an agent of the order and in the exercise of duties required by the order, and Renounces the earnings and gives them to the order. 1040nr See Members of Religious Orders , earlier, under Social Security Coverage. 1040nr Foreign Earned Income Certain income may be exempt from income tax if you work in a foreign country or in a specified U. 1040nr S. 1040nr possession. 1040nr Publication 54 discusses the foreign earned income exclusion. 1040nr Publication 570, Tax Guide for Individuals With Income From U. 1040nr S. 1040nr Possessions, covers the rules for taxpayers with income from U. 1040nr S. 1040nr possessions. 1040nr You can get these free publications from the Internal Revenue Service at IRS. 1040nr gov or from most U. 1040nr S. 1040nr Embassies or consulates. 1040nr Expense Items The tax treatment of ministerial trade or business expenses, expenses allocable to tax-free income, and health insurance costs is discussed here. 1040nr Ministerial Trade or Business Expenses as an Employee When you figure your income tax, you must itemize your deductions on Schedule A (Form 1040) to claim allowable deductions for ministerial trade or business expenses incurred while working as an employee. 1040nr You also may have to file Form 2106, Employee Business Expenses (or Form 2106-EZ, Unreimbursed Employee Business Expenses). 1040nr You claim these expenses as miscellaneous itemized deductions that are subject to the 2%-of-adjusted-gross-income (AGI) limit. 1040nr See Publication 529 for more information on this limit. 1040nr However, you cannot deduct any of your employee business expenses that are allocable to tax-free income (discussed next). 1040nr Expenses Allocable to Tax-Free Income If you receive a rental or parsonage allowance that is exempt from income tax (tax free), you must allocate a portion of the expenses of operating your ministry to that tax-free income. 1040nr You cannot deduct the portion of your expenses that you allocate to your tax-free rental or parsonage allowance. 1040nr Exception. 1040nr   This rule does not apply to your deductions for home mortgage interest or real estate taxes on your home. 1040nr Figuring the allocation. 1040nr   Figure the portion of your otherwise deductible expenses that you cannot deduct (because you must allocate that portion to tax-free income) by multiplying the expenses by the following fraction:      Tax-free rental or parsonage allowance     All income (taxable and tax free) earned from your ministry           When figuring the allocation, include the income and expenses related to the ministerial duties you perform both as an employee and as a self-employed person. 1040nr    Reduce your otherwise deductible expenses only in figuring your income tax, not your SE tax. 1040nr Example. 1040nr Rev. 1040nr Charles Ashford received $40,000 in earnings for ministerial services consisting of a $28,000 salary for ministerial services performed as an employee, $2,000 for weddings and baptisms performed as a self-employed person, and a $10,000 tax-free parsonage allowance. 1040nr He incurred $4,000 of unreimbursed expenses connected with his earnings for ministerial services. 1040nr $3,500 of the $4,000 is for employee expenses related to his ministerial salary, and $500 is related to the weddings and baptisms he performed as a self-employed person. 1040nr Rev. 1040nr Ashford figures the nondeductible (tax-free) portion of expenses related to his ministerial salary as follows: ($10,000 ÷ $40,000) x $3,500 = $875   Rev. 1040nr Ashford figures the nondeductible (tax-free) portion of expenses related to his wedding and baptism income as follows: ($10,000 ÷ $40,000) x $500 = $125 Required statement. 1040nr   If you receive a tax-free rental or parsonage allowance and have ministerial expenses, attach a statement to your tax return. 1040nr The statement must contain all of the following information. 1040nr A list of each item of taxable ministerial income by source (such as wages, salary, weddings, baptisms, etc. 1040nr ) plus the amount. 1040nr A list of each item of tax-free ministerial income by source (parsonage allowance) plus the amount. 1040nr A list of each item of otherwise deductible ministerial expenses plus the amount. 1040nr How you figured the nondeductible part of your otherwise deductible expenses. 1040nr A statement that the other deductions claimed on your tax return are not allocable to your tax-free income. 1040nr   See the attachments prepared for the Comprehensive Example , later. 1040nr Following the example, you will find blank worksheets for your own use. 1040nr Health Insurance Costs of Self-Employed Ministers If you are self-employed, you may be able to deduct the amount you paid in 2013 for medical and dental insurance and qualified long-term care insurance for you, your spouse, and your dependents. 1040nr If you qualify, you can take this deduction as an adjustment to income on Form 1040, line 29. 1040nr See the Instructions for Form 1040 to figure your deduction. 1040nr The following special rules apply to the self-employed health insurance deduction. 1040nr You cannot take a medical expense deduction on Schedule A (Form 1040) for any expenses you claim for purposes of the self-employed health insurance deduction. 1040nr You cannot take the deduction for any month you are eligible to participate in a subsidized plan of your (or your spouse's) employer. 1040nr The deduction cannot exceed your net earnings from the business under which the insurance plan is established. 1040nr Your net earnings under this rule do not include the income you earned as a common-law employee (discussed earlier) of a church. 1040nr More information. 1040nr   For more information about the self-employed health insurance deduction, see chapter 6 in Publication 535. 1040nr Deduction for SE Tax You can deduct one-half of your SE tax in figuring adjusted gross income. 1040nr This is an income tax deduction only, on Form 1040, line 27. 1040nr Do not claim this deduction in figuring net earnings from self-employment subject to SE tax. 1040nr Income Tax Withholding and Estimated Tax The federal income tax is a pay-as-you-go tax. 1040nr You must pay the tax as you earn or receive income during the year. 1040nr An employee usually has income tax withheld from his or her wages or salary. 1040nr However, your salary is not subject to federal income tax withholding if both of the following conditions apply. 1040nr You are a duly ordained, commissioned, or licensed minister, a member of a religious order (who has not taken a vow of poverty), or a Christian Science practitioner or reader. 1040nr Your salary is for ministerial services (see Ministerial Services , earlier). 1040nr If your salary is not subject to withholding, or if you do not pay enough tax through withholding, you may need to make estimated tax payments to avoid penalties for not paying enough tax as you earn your income. 1040nr You generally must make estimated tax payments if you expect to owe taxes, including SE tax, of $1,000 or more, when you file your return. 1040nr Determine your estimated tax by using the worksheets in Publication 505, Tax Withholding and Estimated Tax. 1040nr Pay the entire estimated tax for 2014 or the first installment by April 15, 2014. 1040nr See Form 1040-ES for the different payment methods. 1040nr The April 15 date applies whether or not your tax home and your abode are outside the United States and Puerto Rico. 1040nr For more information, see chapter 2 of Publication 505. 1040nr If you perform your services as a common-law employee of the church and your salary is not subject to income tax withholding, you can enter into a voluntary withholding agreement with the church to cover any income and SE tax that may be due. 1040nr Filing Your Return You must file an income tax return for 2013 if your gross income was at least the amount shown in the third column of Table 4 above. 1040nr Table 4. 1040nr 2013 Filing Requirements for Most Taxpayers IF your filing status is . 1040nr . 1040nr . 1040nr AND at the end of 2013 you were* . 1040nr . 1040nr . 1040nr THEN file a return if your gross income** was at least . 1040nr . 1040nr . 1040nr single under age 65 65 or older   $10,000 $11,500   married filing jointly*** under 65 (both spouses) 65 or older (one spouse) 65 or older (both spouses)   $20,000  $21,200  $22,400   married filing separately any age   $3,900   head of household under 65 65 or older   $12,850 $14,350   qualifying widow(er) with dependent child under 65 65 or older   $16,100  $17,300   * If you were born on January 1, 1949, you are considered to be age 65 at the end of 2013. 1040nr ** Gross income means all income you received in the form of money, goods, property, and services that is not exempt from tax, including any income from sources outside the United States or from the sale of your main home (even if you can exclude part or all of it). 1040nr Do not include any social security benefits unless (a) you are married filing a separate return and you lived with your spouse at any time in 2013, or (b) one-half of your social security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly). 1040nr If (a) or (b) applies, see the instructions for Form 1040, lines 20a and 20b, to figure the taxable part of social security benefits you must include in gross income. 1040nr Gross income includes gains, but not losses, reported on Form 8949 or Schedule D (Form 1040). 1040nr Gross income from a business means, for example, the amount on Schedule C (Form 1040), line 7, or Schedule F (Form 1040), line 9. 1040nr But, in figuring gross income, do not reduce your income by any losses, including any loss on Schedule C (Form 1040), line 7, or Schedule F (Form 1040), line 9. 1040nr *** If you did not live with your spouse at the end of 2013 (or on the date your spouse died) and your gross income was at least $3,900, you must file a return regardless of your age. 1040nr Additional requirements. 1040nr   Even if your income was less than the amount shown in Table 4, you must file an income tax return on Form 1040, and attach a completed Schedule SE (Form 1040), if:    You are not exempt from SE tax, and you have net earnings from self-employment (discussed earlier under Self-Employment Tax: Figuring Net Earnings ) of $400 or more in the tax year, You are exempt from SE tax on earnings from ministerial services and you have $400 or more of other net earnings subject to SE tax, or You had wages of $108. 1040nr 28 or more from an electing church or church-controlled organization (see Coverage of Religious Workers (Church Employees) , earlier, under Social Security Coverage). 1040nr Self-employment tax. 1040nr   If you are liable for SE tax, you must file Schedule SE (Form 1040) with your return. 1040nr   If you filed Form 4361 and did not receive approval from the IRS, you must pay SE tax on your ministerial earnings, as explained earlier. 1040nr You should report ministerial earnings and expenses from nonemployee ministerial services on Schedule C or C-EZ (Form 1040). 1040nr You should then carry the net amount over to line 2 of Schedule SE (Form 1040), Section A or B. 1040nr However, if you were a duly ordained minister who was an employee of a church and you must pay SE tax on the wages you earned for those services, do not report those wages on Schedule C or C-EZ (Form 1040). 1040nr Instead, report those wages less any allowable expenses (including any unreimbursed employee business expenses), on line 2 of Schedule SE (Form 1040), Section A or B, and attach an explanation. 1040nr Note. 1040nr For income tax purposes, the unreimbursed employee business expenses that you incurred as an employee of the church and subtracted from your wages on line 2 of Schedule SE (Form 1040) are allowed only as an itemized deduction on Schedule A (Form 1040) if they exceed 2% of your adjusted gross income. 1040nr You cannot deduct these expenses on Schedule C or C-EZ (Form 1040) as a trade or business expense. 1040nr Exemption from SE tax. 1040nr   If you filed Form 4361 and received IRS approval not to be taxed on your ministerial earnings, and you do not have any other income subject to SE tax, do not file Schedule SE (Form 1040). 1040nr Instead, enter “Exempt—Form 4361” on the dotted line next to Form 1040, line 56. 1040nr However, if you had net earnings from another trade or business of $400 or more subject to SE tax, see line A at the top of Schedule SE (Form 1040), Section B. 1040nr    If you filed Form 4029 and received IRS approval not to be taxed on those earnings, and you do not have any other income subject to SE tax, do not file Schedule SE (Form 1040). 1040nr Instead, enter “Exempt—Form 4029” on the dotted line next to Form 1040, line 56. 1040nr More information. 1040nr   For more information on filing your return, including when and where to file it, see the Instructions for Form 1040. 1040nr Retirement Savings Arrangements Retirement savings arrangements are plans that offer you a tax-favored way to save for your retirement. 1040nr You generally can deduct your contributions to the plan. 1040nr Your contributions and the earnings on them are not taxed until they are distributed. 1040nr Retirement plans for the self-employed. 1040nr   To set up one of the following plans you must be self-employed. 1040nr SEP (simplified employee pension) plan. 1040nr SIMPLE (savings incentive match plan for employees) plan. 1040nr Qualified retirement plan (also called a Keogh or H. 1040nr R. 1040nr 10 plan). 1040nr   The common-law rules determine whether you are an employee or a self-employed person for purposes of setting up a retirement plan. 1040nr See Employment status for other tax purposes under Coverage of Members of the Clergy, earlier. 1040nr This result is true even if your compensation for ministerial services (defined earlier) is subject to SE tax. 1040nr   For example, if a congregation pays you a salary for performing ministerial services and you are subject to the congregation's control, you generally are a common-law employee. 1040nr You are not a self-employed person for purposes of setting up a retirement plan. 1040nr This result is true even if your salary is subject to SE tax. 1040nr   On the other hand, amounts received directly from members of the congregation, such as fees for performing marriages, baptisms, or other personal services that you report on Schedule C or C-EZ (Form 1040), are earnings from self-employment for all tax purposes. 1040nr   For more information on establishing a SEP, SIMPLE, or qualified retirement plan, see Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans). 1040nr Individual retirement arrangements (IRAs). 1040nr   The traditional IRA and the Roth IRA are two individual retirement arrangements you can use to save money for your retirement. 1040nr Generally, your maximum contribution for 2013 to either of these plans (or to a combination of the two) is the smaller of your taxable compensation or $5,500 ($6,500 if you are age 50 or older). 1040nr   However, your maximum contribution to a Roth IRA will be further reduced or eliminated if your adjusted gross income is above a certain amount. 1040nr You cannot deduct Roth IRA contributions, but if you satisfy certain requirements, all earnings in the Roth IRA are tax free and neither your nondeductible contributions nor any earnings on them are taxable when distributed. 1040nr   If you contribute to a traditional IRA, your contribution may be deductible. 1040nr However, your deduction may be reduced or eliminated if you or your spouse is covered by an employer retirement plan (including, but not limited to, a SEP, SIMPLE, or qualified retirement plan). 1040nr   For more information on IRAs, see Publication 590. 1040nr Tax-sheltered annuity plans. 1040nr   Church employees, members of religious orders, and duly ordained, commissioned, or licensed ministers working as ministers or chaplains can participate in tax-sheltered annuity (403(b)) plans. 1040nr For more
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Program and Emphasis Areas for IRS Criminal Investigation

Criminal Investigation (CI) classifies its investigations into program and emphasis areas of fraud. Each program area below contains information on CI's involvement in that area, national statistics, and case summaries.

Abusive Return Preparer Enforcement

Return preparer fraud generally involves the orchestrated preparation and filing of false income tax returns (in either paper or electronic form) by unscrupulous preparers who may claim, for example: inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions.

Abusive Tax Schemes

Abusive tax scheme originally took the structure of abusive domestic and foreign trust arrangements. However, these schemes have evolved into sophisticated arrangements that take advantage of the financial secrecy laws of some foreign jurisdictions and the availability of credit/debit cards issued from offshore financial institutions.

Bankruptcy Fraud

One of Criminal Investigation's goals in bankruptcy fraud investigations is to increase voluntary compliance with federal tax laws through the prosecution of those committing significant crimes in the bankruptcy arena. Since the IRS is often a major creditor in many bankruptcy proceedings, it is important that we protect the interests of the IRS.

Corporate Fraud

Corporate fraud frequently involves violations of the Internal Revenue Code (IRC) through falsification of corporate and individual tax returns and CI has exclusive investigatory jurisdiction over criminal violations of the IRC.

Employment Tax Enforcement

Employment tax evasion schemes can take a variety of forms. Some of the more prevalent methods of evasion include pyramiding, employee leasing, paying employees in cash, filing false payroll tax returns or failing to file payroll tax returns. Evading employment taxes can have serious consequences for employers and the employees.

Financial Institution Fraud

Criminal Investigation focuses on tax and money laundering violations involving fraud against banks, savings and loan associations, credit unions, check cashers, money remitters, and other financial institutions. Currency Transaction Reports and Suspicious Activity Reports continue to be effective investigative tools in the financial world.

Gaming

Illegal gaming operations, including bookmaking, numbers, Internet and some charitable gaming operations, continue to be areas of compliance concern. Criminal Investigation continues to play an enforcement role in the illegal gaming industry and to support regulatory and legislative initiatives aimed at eliminating an environment conducive to illegal gambling.

General Fraud Investigations

Criminal Investigation special agents investigate violations of the tax laws and related financial crimes. Taxpayers who chose to willfully and intentionally not comply with their legal responsibility to file required tax returns and/or pay taxes pose a serious threat to tax administration and the American economy.

Healthcare Fraud

Multi-agency healthcare fraud investigations and prosecutions show that perpetrators of these schemes financially benefited from their fraudulent activities in false billings, mental health, nursing home fraud, chiropractic fraud, durable medical equipment fraud, staged accidents, pharmaceutical diversion, and patient referral (kickbacks) schemes. In these investigations, Criminal Investigation follows the money trail and considers both tax and money laundering perspectives.

Identity Theft Schemes

IRS Criminal Investigation (CI) detects and investigates tax fraud and other financial fraud, including fraud related to identity theft.

Insurance Fraud

Insurance Fraud can involve tax law and/or money laundering violations relative to insurance claims and fraud perpetrated against insurance companies. The variety of schemes include agent/broker premium diversion, phony insurance companies, offshore/unlicensed Internet companies, staged auto accidents, viatical and senior settlement.

International Investigations

International tax compliance is a top priority of the IRS. Complex international tax avoidance schemes and cross-border transactions have heightened the IRS’ concern about tax compliance. Individuals may attempt to use foreign accounts, trusts, and other entities to commit criminal violations of U.S. tax laws as well as narcotics, money laundering and Bank Secrecy Act (BSA) violations. 

Money Laundering & Bank Secrecy Act (BSA)

Money laundering is a very complex crime involving intricate details, often involving numerous financial transactions and financial outlets throughout the world.  Criminal Investigation has the financial investigators and expertise that is critical to “follow the money trail.”

Mortgage & Real Estate Fraud

The income earned from mortgage and real estate fraud schemes is often not reported on tax returns or is laundered to hide the money from the government. 

Narcotics-Related Investigations

Criminal Investigation's contribution to the war on narcotics is vital but sometimes difficult to recognize, because the work of IRS special agents usually doesn't make the headlines. The long hours of tracking down and documenting financial leads allows an investigation to go right to the door of the leader of the narcotics organization, which contributes to the disrupting and dismantling the country's major drug and money laundering organizations.

Non-filer Enforcement

There have always been individuals who, for a variety of reasons, argue taxes are voluntary or illegal. The courts have repeatedly rejected their arguments as frivolous and routinely impose financial penalties for raising such frivolous arguments. Take the time to learn the truth about frivolous tax arguments.

Public Corruption Crimes

Public corruption investigations encompass a wide variety of criminal offenses including bribery, extortion, embezzlement, illegal kickbacks, entitlement and subsidy fraud, bank fraud, tax fraud, and money laundering. Criminal Investigation concentrates its resources on the tax and money laundering aspects of these investigations in cooperation with other federal, state, and local law enforcement agencies. The expertise used in investigations has established our reputation as one of the leaders in the fight against corrupt public officials.

Questionable Refund Program (QRP)

Questionable Refund Program (QRP) is a nationwide, multifunctional program designed to identify fraudulent returns, to stop the payment of fraudulent refunds and to refer identified fraudulent refund schemes to be investigated and prosecuted criminally.

 


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How to Report Suspected Tax Fraud Activities

Page Last Reviewed or Updated: 05-Sep-2013

The 1040nr

1040nr Publication 596 - Introductory Material Table of Contents Future Developments What is the EIC? Can I Claim the EIC? Do I Need This Publication? Do I Have To Have A Child To Qualify For The EIC? How Do I Figure the Amount of EIC? How Can I Quickly Locate Specific information? Is There Help Online? What's New for 2013 Reminders Future Developments For the latest information about developments related to Publication 596, such as legislation enacted after it was published, go to www. 1040nr irs. 1040nr gov/pub596. 1040nr What is the EIC? The earned income credit (EIC) is a tax credit for certain people who work and have earned income under $51,567. 1040nr A tax credit usually means more money in your pocket. 1040nr It reduces the amount of tax you owe. 1040nr The EIC may also give you a refund. 1040nr Can I Claim the EIC? To claim the EIC, you must meet certain rules. 1040nr These rules are summarized in Table 1. 1040nr Table 1. 1040nr Earned Income Credit in a Nutshell First, you must meet all the rules in this column. 1040nr Second, you must meet all the rules in one of these columns, whichever applies. 1040nr Third, you must meet the rule in this column. 1040nr Chapter 1. 1040nr  Rules for Everyone Chapter 2. 1040nr  Rules If You Have a Qualifying Child Chapter 3. 1040nr  Rules If You Do Not Have a Qualifying Child Chapter 4. 1040nr  Figuring and Claiming the EIC 1. 1040nr Your adjusted gross income (AGI) must be less than:  • $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children,  • $43,038 ($48,378 for married filing jointly) if you have two qualifying children,  • $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or   • $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. 1040nr 2. 1040nr You must have a valid social security number. 1040nr   3. 1040nr Your filing status cannot be Married filing separately. 1040nr   4. 1040nr You must be a U. 1040nr S. 1040nr citizen or resident alien all year. 1040nr   5. 1040nr You cannot file Form 2555 or Form 2555-EZ (relating to foreign earned income). 1040nr   6. 1040nr Your investment income must be $3,300 or less. 1040nr    7. 1040nr You must have earned income. 1040nr 8. 1040nr Your child must meet the relationship, age, residency, and joint return tests. 1040nr   9. 1040nr Your qualifying child cannot be used by more than one person to claim the EIC. 1040nr   10. 1040nr You cannot be a qualifying child of another person. 1040nr 11. 1040nr You must be at least age 25 but under age 65. 1040nr    12. 1040nr You cannot be the dependent of another person. 1040nr   13. 1040nr You cannot be a qualifying child of another person. 1040nr   14. 1040nr You must have lived in the United States more than half of the year. 1040nr 15. 1040nr Your earned income must be less than:  • $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children,  • $43,038 ($48,378 for married filing jointly) if you have two qualifying children,  • $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or  • $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. 1040nr Do I Need This Publication? Certain people who file Form 1040 must use Worksheet 1 in this publication, instead of Step 2 in their Form 1040 instructions, when they are checking whether they can take the EIC. 1040nr You are one of those people if any of the following statements are true for 2013. 1040nr You are filing Schedule E (Form 1040). 1040nr You are reporting income from the rental of personal property not used in a trade or business. 1040nr You are reporting income on Form 1040, line 21, from Form 8814 (relating to election to report child's interest and dividends). 1040nr You are reporting an amount on Form 1040, line 13, that includes an amount from Form 4797. 1040nr If none of the statements above apply to you, your tax form instructions have all the information you need to find out if you can claim the EIC and to figure the amount of your EIC. 1040nr You do not need this publication. 1040nr But you can read it to find out whether you can take the EIC and to learn more about the EIC. 1040nr Do I Have To Have A Child To Qualify For The EIC? No, you can qualify for the EIC without a qualifying child if you are at least age 25 but under age 65 and your earned income is less than $14,340 ($19,680 if married filing jointly). 1040nr See chapter 3. 1040nr How Do I Figure the Amount of EIC? If you can claim the EIC, you can either have the IRS figure the amount of your credit, or you can figure it yourself. 1040nr To figure it yourself, you can complete a worksheet in the instructions for the form you file. 1040nr To find out how to have the IRS figure it for you, see chapter 4. 1040nr How Can I Quickly Locate Specific information? You can use the index to look up specific information. 1040nr In most cases, index entries will point you to headings, tables, or a worksheet. 1040nr Is There Help Online? Yes. 1040nr You can use the EITC Assistant at www. 1040nr irs. 1040nr gov/eitc to find out if you may be eligible for the credit. 1040nr The EITC Assistant is available in English and Spanish. 1040nr What's New for 2013 Earned income amount is more. 1040nr The maximum amount of income you can earn and still get the credit has increased. 1040nr You may be able to take the credit if: You have three or more qualifying children and you earned less than $46,227 ($51,567 if married filing jointly), You have two qualifying children and you earned less than $43,038 ($48,378 if married filing jointly), You have one qualifying child and you earned less than $37,870 ($43,210 if married filing jointly), or You do not have a qualifying child and you earned less than $14,340 ($19,680 if married filing jointly). 1040nr Your adjusted gross income also must be less than the amount in the above list that applies to you. 1040nr For details, see Rules 1 and 15. 1040nr Investment income amount is more. 1040nr The maximum amount of investment income you can have and still get the credit has increased to $3,300. 1040nr See Rule 6—Your Investment Income Must Be $3,300 or Less . 1040nr Reminders Increased EIC on certain joint returns. 1040nr . 1040nr  A married person filing a joint return may get more EIC than someone with the same income but a different filing status. 1040nr As a result, the EIC table has different columns for married persons filing jointly than for everyone else. 1040nr When you look up your EIC in the EIC Table, be sure to use the correct column for your filing status and the number of children you have. 1040nr Earned income credit has no effect on certain welfare benefits. 1040nr  Any refund you receive because of the EIC cannot be counted as income when determining whether you or anyone else is eligible for benefits or assistance, or how much you or anyone else can receive, under any federal program or under any state or local program financed in whole or in part with federal funds. 1040nr These programs include the following. 1040nr Temporary Assistance for Needy Families (TANF). 1040nr Medicaid. 1040nr Supplemental security income (SSI). 1040nr Supplemental Nutrition Assistance Program (food stamps). 1040nr Low-income housing. 1040nr In addition, when determining eligibility, the refund cannot be counted as a resource for at least 12 months after you receive it. 1040nr Check with your local benefit coordinator to find out if your refund will affect your benefits. 1040nr Do not overlook your state credit. 1040nr  If you can claim the EIC on your federal income tax return, you may be able to take a similar credit on your state or local income tax return. 1040nr For a list of states that offer a state EIC, go to www. 1040nr irs. 1040nr gov/eitc. 1040nr EIC questioned by IRS. 1040nr  The IRS may ask you to provide documents to prove you are entitled to claim the EIC. 1040nr We will tell you what documents to send us. 1040nr These may include: birth certificates, school records, etc. 1040nr The process of establishing your eligibility will delay your refund. 1040nr Spanish version of Publication 596. 1040nr  You can order Publicación 596SP, Crédito por Ingreso del Trabajo, from the IRS. 1040nr It is a Spanish translation of Publication 596. 1040nr See How To Get Tax Help to find out how to order this and other IRS forms and publications. 1040nr Photographs of missing children. 1040nr  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. 1040nr Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. 1040nr You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. 1040nr Comments and suggestions. 1040nr  We welcome your comments about this publication and your suggestions for future editions. 1040nr You can write to us at the following address:  Internal Revenue Service Individual Forms and Publications Branch 1111 Constitution Ave. 1040nr NW, IR-6526 Washington, DC 20224 We respond to many letters by telephone. 1040nr Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. 1040nr You can send your comments from www. 1040nr irs. 1040nr gov/formspubs/. 1040nr Click on “More Information” and then on “Comment on Tax Forms and Publications. 1040nr ” Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. 1040nr Ordering forms and publications. 1040nr  Visit www. 1040nr irs. 1040nr gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. 1040nr  Internal Revenue Service 1201 N. 1040nr Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. 1040nr  If you have a tax question, check the information available on IRS. 1040nr gov or call 1-800-829-1040. 1040nr We cannot answer tax questions sent to either of the above addresses. 1040nr Prev  Up  Next   Home   More Online Publications