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2012 Irs Tax Forms 1040a

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2012 Irs Tax Forms 1040a

2012 irs tax forms 1040a 5. 2012 irs tax forms 1040a   Taxes Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: When To Deduct Taxes Real Estate TaxesSeparate elections. 2012 irs tax forms 1040a Making the election. 2012 irs tax forms 1040a Form 3115. 2012 irs tax forms 1040a Income TaxesAccrual of contested income taxes. 2012 irs tax forms 1040a Employment Taxes Other TaxesAdditional Medicare Tax. 2012 irs tax forms 1040a What's New Additional Medicare Tax. 2012 irs tax forms 1040a  Beginning in 2013, you must withhold a 0. 2012 irs tax forms 1040a 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. 2012 irs tax forms 1040a Also, self-employed individuals may be required to pay Additional Medicare Tax on self-employment income. 2012 irs tax forms 1040a See Employment Taxes , and Self-employment tax , later. 2012 irs tax forms 1040a Introduction You can deduct various federal, state, local, and foreign taxes directly attributable to your trade or business as business expenses. 2012 irs tax forms 1040a You cannot deduct federal income taxes, estate and gift taxes, or state inheritance, legacy, and succession taxes. 2012 irs tax forms 1040a Topics - This chapter discusses: When to deduct taxes Real estate taxes Income taxes Employment taxes Other taxes Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 334 Tax Guide for Small Business 510 Excise Taxes 538 Accounting Periods and Methods 551 Basis of Assets Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch SE (Form 1040) Self-Employment Tax 3115 Application for Change in Accounting Method 8959 Additional Medicare Tax See chapter 12 for information about getting publications and forms. 2012 irs tax forms 1040a When To Deduct Taxes Generally, you can only deduct taxes in the year you pay them. 2012 irs tax forms 1040a This applies whether you use the cash method or an accrual method of accounting. 2012 irs tax forms 1040a Under an accrual method, you can deduct a tax before you pay it if you meet the exception for recurring items discussed under Economic Performance in Publication 538. 2012 irs tax forms 1040a You can also elect to ratably accrue real estate taxes as discussed later under Real Estate Taxes . 2012 irs tax forms 1040a Limit on accrual of taxes. 2012 irs tax forms 1040a   A taxing jurisdiction can require the use of a date for accruing taxes that is earlier than the date it originally required. 2012 irs tax forms 1040a However, if you use an accrual method, and can deduct the tax before you pay it, use the original accrual date for the year of change and all future years to determine when you can deduct the tax. 2012 irs tax forms 1040a Example. 2012 irs tax forms 1040a Your state imposes a tax on personal property used in a trade or business conducted in the state. 2012 irs tax forms 1040a This tax is assessed and becomes a lien as of July 1 (accrual date). 2012 irs tax forms 1040a In 2013, the state changed the assessment and lien dates from July 1, 2014, to December 31, 2013, for property tax year 2014. 2012 irs tax forms 1040a Use the original accrual date (July 1, 2014) to determine when you can deduct the tax. 2012 irs tax forms 1040a You must also use the July 1 accrual date for all future years to determine when you can deduct the tax. 2012 irs tax forms 1040a Uniform capitalization rules. 2012 irs tax forms 1040a   Uniform capitalization rules apply to certain taxpayers who produce real property or tangible personal property for use in a trade or business or for sale to customers. 2012 irs tax forms 1040a They also apply to certain taxpayers who acquire property for resale. 2012 irs tax forms 1040a Under these rules, you either include certain costs in inventory or capitalize certain expenses related to the property, such as taxes. 2012 irs tax forms 1040a For more information, see chapter 1. 2012 irs tax forms 1040a Carrying charges. 2012 irs tax forms 1040a   Carrying charges include taxes you pay to carry or develop real estate or to carry, transport, or install personal property. 2012 irs tax forms 1040a You can elect to capitalize carrying charges not subject to the uniform capitalization rules if they are otherwise deductible. 2012 irs tax forms 1040a For more information, see chapter 7. 2012 irs tax forms 1040a Refunds of taxes. 2012 irs tax forms 1040a   If you receive a refund for any taxes you deducted in an earlier year, include the refund in income to the extent the deduction reduced your federal income tax in the earlier year. 2012 irs tax forms 1040a For more information, see Recovery of amount deducted (tax benefit rule) in chapter 1. 2012 irs tax forms 1040a    You must include in income any interest you receive on tax refunds. 2012 irs tax forms 1040a Real Estate Taxes Deductible real estate taxes are any state, local, or foreign taxes on real estate levied for the general public welfare. 2012 irs tax forms 1040a The taxing authority must base the taxes on the assessed value of the real estate and charge them uniformly against all property under its jurisdiction. 2012 irs tax forms 1040a Deductible real estate taxes generally do not include taxes charged for local benefits and improvements that increase the value of the property. 2012 irs tax forms 1040a See Taxes for local benefits , later. 2012 irs tax forms 1040a If you use an accrual method, you generally cannot accrue real estate taxes until you pay them to the government authority. 2012 irs tax forms 1040a However, you can elect to ratably accrue the taxes during the year. 2012 irs tax forms 1040a See Electing to ratably accrue , later. 2012 irs tax forms 1040a Taxes for local benefits. 2012 irs tax forms 1040a   Generally, you cannot deduct taxes charged for local benefits and improvements that tend to increase the value of your property. 2012 irs tax forms 1040a These include assessments for streets, sidewalks, water mains, sewer lines, and public parking facilities. 2012 irs tax forms 1040a You should increase the basis of your property by the amount of the assessment. 2012 irs tax forms 1040a   You can deduct taxes for these local benefits only if the taxes are for maintenance, repairs, or interest charges related to those benefits. 2012 irs tax forms 1040a If part of the tax is for maintenance, repairs, or interest, you must be able to show how much of the tax is for these expenses to claim a deduction for that part of the tax. 2012 irs tax forms 1040a Example. 2012 irs tax forms 1040a To improve downtown commercial business, Waterfront City converted a downtown business area street into an enclosed pedestrian mall. 2012 irs tax forms 1040a The city assessed the full cost of construction, financed with 10-year bonds, against the affected properties. 2012 irs tax forms 1040a The city is paying the principal and interest with the annual payments made by the property owners. 2012 irs tax forms 1040a The assessments for construction costs are not deductible as taxes or as business expenses, but are depreciable capital expenses. 2012 irs tax forms 1040a The part of the payments used to pay the interest charges on the bonds is deductible as taxes. 2012 irs tax forms 1040a Charges for services. 2012 irs tax forms 1040a   Water bills, sewerage, and other service charges assessed against your business property are not real estate taxes, but are deductible as business expenses. 2012 irs tax forms 1040a Purchase or sale of real estate. 2012 irs tax forms 1040a   If real estate is sold, the real estate taxes must be allocated between the buyer and the seller. 2012 irs tax forms 1040a   The buyer and seller must allocate the real estate taxes according to the number of days in the real property tax year (the period to which the tax imposed relates) that each owned the property. 2012 irs tax forms 1040a Treat the seller as paying the taxes up to but not including the date of sale. 2012 irs tax forms 1040a Treat the buyer as paying the taxes beginning with the date of sale. 2012 irs tax forms 1040a You can usually find this information on the settlement statement you received at closing. 2012 irs tax forms 1040a   If you (the seller) use an accrual method and have not elected to ratably accrue real estate taxes, you are considered to have accrued your part of the tax on the date you sell the property. 2012 irs tax forms 1040a Example. 2012 irs tax forms 1040a Alberto Verde, a calendar year accrual method taxpayer, owns real estate in Olmo County. 2012 irs tax forms 1040a He has not elected to ratably accrue property taxes. 2012 irs tax forms 1040a November 30 of each year is the assessment and lien date for the current real property tax year, which is the calendar year. 2012 irs tax forms 1040a He sold the property on June 30, 2013. 2012 irs tax forms 1040a Under his accounting method he would not be able to claim a deduction for the taxes because the sale occurred before November 30. 2012 irs tax forms 1040a He is treated as having accrued his part of the tax, 181/366  (January 1–June 29), on June 30, and he can deduct it for 2013. 2012 irs tax forms 1040a Electing to ratably accrue. 2012 irs tax forms 1040a   If you use an accrual method, you can elect to accrue real estate tax related to a definite period ratably over that period. 2012 irs tax forms 1040a Example. 2012 irs tax forms 1040a Juan Sanchez is a calendar year taxpayer who uses an accrual method. 2012 irs tax forms 1040a His real estate taxes for the real property tax year, July 1, 2013, to June 30, 2014, are $1,200. 2012 irs tax forms 1040a July 1 is the assessment and lien date. 2012 irs tax forms 1040a If Juan elects to ratably accrue the taxes, $600 will accrue in 2013 ($1,200 × 6/12, July 1–December 31) and the balance will accrue in 2014. 2012 irs tax forms 1040a Separate elections. 2012 irs tax forms 1040a   You can elect to ratably accrue the taxes for each separate trade or business and for nonbusiness activities if you account for them separately. 2012 irs tax forms 1040a Once you elect to ratably accrue real estate taxes, you must use that method unless you get permission from the IRS to change. 2012 irs tax forms 1040a See Form 3115 , later. 2012 irs tax forms 1040a Making the election. 2012 irs tax forms 1040a   If you elect to ratably accrue the taxes for the first year in which you incur real estate taxes, attach a statement to your income tax return for that year. 2012 irs tax forms 1040a The statement should show all the following items. 2012 irs tax forms 1040a The trades or businesses to which the election applies and the accounting method or methods used. 2012 irs tax forms 1040a The period to which the taxes relate. 2012 irs tax forms 1040a The computation of the real estate tax deduction for that first year. 2012 irs tax forms 1040a   Generally, you must file your return by the due date (including extensions). 2012 irs tax forms 1040a However, if you timely filed your return for the year without electing to ratably accrue, you can still make the election by filing an amended return within 6 months after the due date of the return (excluding extensions). 2012 irs tax forms 1040a Attach the statement to the amended return and write “Filed pursuant to section 301. 2012 irs tax forms 1040a 9100-2” on the statement. 2012 irs tax forms 1040a File the amended return at the same address where you filed the original return. 2012 irs tax forms 1040a Form 3115. 2012 irs tax forms 1040a    If you elect to ratably accrue real estate taxes for a year after the first year in which you incur real estate taxes, or if you want to revoke your election to ratably accrue real estate taxes, file Form 3115. 2012 irs tax forms 1040a For more information, including applicable time frames for filing, see the Instructions for Form 3115. 2012 irs tax forms 1040a Note. 2012 irs tax forms 1040a If you are filing an application for a change in accounting method filed after January 9, 2011, for a year of change ending after April 29, 2010, see Revenue Procedure 2011-14, 2011-4 I. 2012 irs tax forms 1040a R. 2012 irs tax forms 1040a B. 2012 irs tax forms 1040a 330, as modified and clarified by Revenue Procedure 2012-19, 2012-14 I. 2012 irs tax forms 1040a R. 2012 irs tax forms 1040a B. 2012 irs tax forms 1040a 689, and Revenue Procedure 2012-20, 2012-14 I. 2012 irs tax forms 1040a R. 2012 irs tax forms 1040a B. 2012 irs tax forms 1040a 700, or any successor. 2012 irs tax forms 1040a Revenue Procedure 2011-14 is available at  www. 2012 irs tax forms 1040a irs. 2012 irs tax forms 1040a gov/irb/2011-04IRB/ar08. 2012 irs tax forms 1040a html. 2012 irs tax forms 1040a Income Taxes This section discusses federal, state, local, and foreign income taxes. 2012 irs tax forms 1040a Federal income taxes. 2012 irs tax forms 1040a   You cannot deduct federal income taxes. 2012 irs tax forms 1040a State and local income taxes. 2012 irs tax forms 1040a   A corporation or partnership can deduct state and local income taxes imposed on the corporation or partnership as business expenses. 2012 irs tax forms 1040a An individual can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040). 2012 irs tax forms 1040a   However, an individual can deduct a state tax on gross income (as distinguished from net income) directly attributable to a trade or business as a business expense. 2012 irs tax forms 1040a Accrual of contested income taxes. 2012 irs tax forms 1040a   If you use an accrual method, and you contest a state or local income tax liability, you must accrue and deduct any contested amount in the tax year in which the liability is finally determined. 2012 irs tax forms 1040a   If additional state or local income taxes for a prior year are assessed in a later year, you can deduct the taxes in the year in which they were originally imposed (the prior year) if the tax liability is not contested. 2012 irs tax forms 1040a You cannot deduct them in the year in which the liability is finally determined. 2012 irs tax forms 1040a    The filing of an income tax return is not considered a contest and, in the absence of an overt act of protest, you can deduct the tax in the prior year. 2012 irs tax forms 1040a Also, you can deduct any additional taxes in the prior year if you do not show some affirmative evidence of denial of the liability. 2012 irs tax forms 1040a   However, if you consistently deduct additional assessments in the year they are paid or finally determined (including those for which there was no contest), you must continue to do so. 2012 irs tax forms 1040a You cannot take a deduction in the earlier year unless you receive permission to change your method of accounting. 2012 irs tax forms 1040a For more information on accounting methods, see When Can I Deduct an Expense in chapter 1. 2012 irs tax forms 1040a Foreign income taxes. 2012 irs tax forms 1040a   Generally, you can take either a deduction or a credit for income taxes imposed on you by a foreign country or a U. 2012 irs tax forms 1040a S. 2012 irs tax forms 1040a possession. 2012 irs tax forms 1040a However, an individual cannot take a deduction or credit for foreign income taxes paid on income that is exempt from U. 2012 irs tax forms 1040a S. 2012 irs tax forms 1040a tax under the foreign earned income exclusion or the foreign housing exclusion. 2012 irs tax forms 1040a For information on these exclusions, see Publication 54, Tax Guide for U. 2012 irs tax forms 1040a S. 2012 irs tax forms 1040a Citizens and Resident Aliens Abroad. 2012 irs tax forms 1040a For information on the foreign tax credit, see Publication 514, Foreign Tax Credit for Individuals. 2012 irs tax forms 1040a Employment Taxes If you have employees, you must withhold various taxes from your employees' pay. 2012 irs tax forms 1040a Most employers must withhold their employees' share of social security, Medicare taxes, and Additional Medicare Tax (if applicable) along with state and federal income taxes. 2012 irs tax forms 1040a You may also need to pay certain employment taxes from your own funds. 2012 irs tax forms 1040a These include your share of social security and Medicare taxes as an employer, along with unemployment taxes. 2012 irs tax forms 1040a Note. 2012 irs tax forms 1040a Additional Medicare Tax is only imposed on the employee. 2012 irs tax forms 1040a There is no employer share of Additional Medicare Tax. 2012 irs tax forms 1040a Your deduction for wages paid is not reduced by the social security and Medicare taxes, Additional Medicare Tax, and income taxes you withhold from your employees. 2012 irs tax forms 1040a You can deduct the employment taxes you must pay from your own funds as taxes. 2012 irs tax forms 1040a Example. 2012 irs tax forms 1040a You pay your employee $18,000 a year. 2012 irs tax forms 1040a However, after you withhold various taxes, your employee receives $14,500. 2012 irs tax forms 1040a You also pay an additional $1,500 in employment taxes. 2012 irs tax forms 1040a You should deduct the full $18,000 as wages. 2012 irs tax forms 1040a You can deduct the $1,500 you pay from your own funds as taxes. 2012 irs tax forms 1040a For more information on employment taxes, see Publication 15 (Circular E). 2012 irs tax forms 1040a Unemployment fund taxes. 2012 irs tax forms 1040a   As an employer, you may have to make payments to a state unemployment compensation fund or to a state disability benefit fund. 2012 irs tax forms 1040a Deduct these payments as taxes. 2012 irs tax forms 1040a Other Taxes The following are other taxes you can deduct if you incur them in the ordinary course of your trade or business. 2012 irs tax forms 1040a Excise taxes. 2012 irs tax forms 1040a   Generally, you can deduct as a business expense all excise taxes that are ordinary and necessary expenses of carrying on your trade or business. 2012 irs tax forms 1040a However, see Fuel taxes , later. 2012 irs tax forms 1040a   For more information on excise taxes, see Publication 510. 2012 irs tax forms 1040a Franchise taxes. 2012 irs tax forms 1040a   You can deduct corporate franchise taxes as a business expense. 2012 irs tax forms 1040a Fuel taxes. 2012 irs tax forms 1040a   Generally, taxes on gasoline, diesel fuel, and other motor fuels that you use in your business are included as part of the cost of the fuel. 2012 irs tax forms 1040a Do not deduct these taxes as a separate item. 2012 irs tax forms 1040a   You may be entitled to a credit or refund for federal excise tax you paid on fuels used for certain purposes. 2012 irs tax forms 1040a For more information, see Publication 510. 2012 irs tax forms 1040a Occupational taxes. 2012 irs tax forms 1040a   You can deduct as a business expense an occupational tax charged at a flat rate by a locality for the privilege of working or conducting a business in the locality. 2012 irs tax forms 1040a Personal property tax. 2012 irs tax forms 1040a   You can deduct any tax imposed by a state or local government on personal property used in your trade or business. 2012 irs tax forms 1040a Sales tax. 2012 irs tax forms 1040a   Treat any sales tax you pay on a service or on the purchase or use of property as part of the cost of the service or property. 2012 irs tax forms 1040a If the service or the cost or use of the property is a deductible business expense, you can deduct the tax as part of that service or cost. 2012 irs tax forms 1040a If the property is merchandise bought for resale, the sales tax is part of the cost of the merchandise. 2012 irs tax forms 1040a If the property is depreciable, add the sales tax to the basis for depreciation. 2012 irs tax forms 1040a For more information on basis, see Publication 551. 2012 irs tax forms 1040a    Do not deduct state and local sales taxes imposed on the buyer that you must collect and pay over to the state or local government. 2012 irs tax forms 1040a Also, do not include these taxes in gross receipts or sales. 2012 irs tax forms 1040a Self-employment tax. 2012 irs tax forms 1040a   You can deduct part of your self-employment tax as a business expense in figuring your adjusted gross income. 2012 irs tax forms 1040a This deduction only affects your income tax. 2012 irs tax forms 1040a It does not affect your net earnings from self-employment or your self-employment tax. 2012 irs tax forms 1040a   To deduct the tax, enter on Form 1040, line 27, the amount shown on the Deduction for one-half of self-employment tax line of Schedule SE (Form 1040). 2012 irs tax forms 1040a   For more information on self-employment tax, see Publication 334. 2012 irs tax forms 1040a Additional Medicare Tax. 2012 irs tax forms 1040a   Beginning in 2013, you may be required to pay Additional Medicare Tax on self-employment income. 2012 irs tax forms 1040a See Form 8959 and the Instructions for Form 8959 for more information on the 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Statement by IRS Commissioner John Koskinen on The Fiscal Year 2015 Budget

The Fiscal Year 2015 Budget proposal is a critical step forward in order for us to improve vital taxpayer services and enforcement efforts. Funding the IRS at this level will be a good investment for the nation, helping taxpayers get the service they need and strengthening compliance efforts in key areas, including identity theft, refund fraud and offshore compliance. Every dollar invested in IRS enforcement provides a strong return on investment in revenue collection, plus an added protection in deterring potential fraud. It also halts the decline in key enforcement personnel, and allows the agency to again invest in necessary basic infrastructure and training. In the meantime, we continue looking for more efficiencies to get the most out of every dollar of the budget.

 

The Fiscal Year 2015 Budget will put a stop to significant declines in taxpayer service over the past four years. We are doing everything we can to maximize our services with our current resources, and IRS employees are working hard to minimize delays and deliver as much service as possible. However, it’s clear we need to do more to help taxpayers, and the proposed seven percent increase for taxpayer services will be a big help.

 

Budget In Brief Fiscal Year 2015

Page Last Reviewed or Updated: 04-Mar-2014

The 2012 Irs Tax Forms 1040a

2012 irs tax forms 1040a Publication 517 - Main Content Table of Contents Social Security CoverageCoverage of Members of the Clergy Coverage of Religious Workers (Church Employees) U. 2012 irs tax forms 1040a S. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a Full-time student. 2012 irs tax forms 1040a Adjusted gross income. 2012 irs tax forms 1040a More information. 2012 irs tax forms 1040a 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). 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a Your earnings for these ministerial services (defined later) are subject to self-employment (SE) tax unless one of the following applies. 2012 irs tax forms 1040a You are a member of a religious order who has taken a vow of poverty. 2012 irs tax forms 1040a You ask the Internal Revenue Service (IRS) for an exemption from SE tax for your services and the IRS approves your request. 2012 irs tax forms 1040a See Exemption From Self-Employment (SE) Tax , later. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a For more information, see Bilateral Social Security (Totalization) Agreements in Publication 54. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a See Ministerial Services , later. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a However, you can request that the IRS grant you an exemption, as discussed under Exemption From Self-Employment (SE) Tax , later. 2012 irs tax forms 1040a For the specific services covered, see Ministerial Services , later. 2012 irs tax forms 1040a Ministers defined. 2012 irs tax forms 1040a   Ministers are individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a Employment status for other tax purposes. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a For income tax or retirement plan purposes, your income earned as an employee will be considered wages. 2012 irs tax forms 1040a Common-law employee. 2012 irs tax forms 1040a   Under common-law rules, you are considered either an employee or a self-employed person. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a For more information about the common-law rules, see Publication 15-A, Employer's Supplemental Tax Guide. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a Example. 2012 irs tax forms 1040a A church hires and pays you a salary to perform ministerial services subject to its control. 2012 irs tax forms 1040a Under the common-law rules, you are an employee of the church while performing those services. 2012 irs tax forms 1040a Form SS-8. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a See Ministerial Services , later. 2012 irs tax forms 1040a However, you can request that the IRS grant you an exemption as discussed under Exemption From Self-Employment (SE) Tax , later. 2012 irs tax forms 1040a Vow of poverty. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a You do not need to request a separate exemption. 2012 irs tax forms 1040a For income tax purposes, the earnings are tax free to you. 2012 irs tax forms 1040a Your earnings are considered the income of the religious order. 2012 irs tax forms 1040a Services covered under FICA at the election of the order. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a   The order or subdivision elects coverage by filing Form SS-16. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a If the election is made, the order or subdivision pays both the employer's and employee's share of the tax. 2012 irs tax forms 1040a You do not pay any of the FICA tax. 2012 irs tax forms 1040a Services performed outside the order. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a   In these cases, your income from self-employment or as an employee of that outside organization is taxable to you directly. 2012 irs tax forms 1040a You may, however, be able to take a charitable deduction for the amount you turn over to the order. 2012 irs tax forms 1040a See Publication 526, Charitable Contributions. 2012 irs tax forms 1040a Rulings. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a To request a ruling, follow the procedures in Revenue Procedure 2014-1, 2014-1 I. 2012 irs tax forms 1040a R. 2012 irs tax forms 1040a B. 2012 irs tax forms 1040a 1, available at www. 2012 irs tax forms 1040a irs. 2012 irs tax forms 1040a gov/irb/2014-1_IRB/ar05. 2012 irs tax forms 1040a html. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a However, you can request an exemption as discussed under Exemption From Self-Employment (SE) Tax , later. 2012 irs tax forms 1040a Practitioners. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a State law specifically exempts Christian Science practitioners from licensing requirements. 2012 irs tax forms 1040a   Some Christian Science practitioners also are Christian Science teachers or lecturers. 2012 irs tax forms 1040a Income from teaching or lecturing is considered the same as income from their work as practitioners. 2012 irs tax forms 1040a Readers. 2012 irs tax forms 1040a   For tax purposes, Christian Science readers are considered the same as ordained, commissioned, or licensed ministers. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a Some exceptions are discussed next. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a Instead, your wages are subject to SECA and you must pay SE tax on your wages if they exceed $108. 2012 irs tax forms 1040a 28 during the tax year. 2012 irs tax forms 1040a However, you can request an exemption from SE tax if you are a member of a recognized religious sect, as discussed below. 2012 irs tax forms 1040a Churches and church organizations make this election by filing two copies of Form 8274. 2012 irs tax forms 1040a For more information about making this election, see Form 8274. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a This exemption does not apply to your service, if any, as a minister of a church or as a member of a religious order. 2012 irs tax forms 1040a Make this choice by filing Form 4029. 2012 irs tax forms 1040a See Requesting Exemption—Form 4029 , later, under Members of Recognized Religious Sects. 2012 irs tax forms 1040a U. 2012 irs tax forms 1040a S. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a S. 2012 irs tax forms 1040a social security system. 2012 irs tax forms 1040a To determine your alien status, see Publication 519, U. 2012 irs tax forms 1040a S. 2012 irs tax forms 1040a Tax Guide for Aliens. 2012 irs tax forms 1040a Residents of Puerto Rico, the U. 2012 irs tax forms 1040a S. 2012 irs tax forms 1040a Virgin Islands, Guam, the CNMI, and American Samoa. 2012 irs tax forms 1040a   If you are a resident of one of these U. 2012 irs tax forms 1040a S. 2012 irs tax forms 1040a possessions but not a U. 2012 irs tax forms 1040a S. 2012 irs tax forms 1040a citizen, for SE tax purposes you are treated the same as a citizen or resident alien of the United States. 2012 irs tax forms 1040a For information on figuring the tax, see Self-Employment Tax: Figuring Net Earnings , later. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a Income you receive for performing ministerial services is subject to SE tax unless you have an exemption as explained later. 2012 irs tax forms 1040a Even if you have an exemption, only the income you receive for performing ministerial services is exempt. 2012 irs tax forms 1040a The exemption does not apply to any other income. 2012 irs tax forms 1040a The following discussions provide more detailed information on ministerial services of ministers, members of a religious order, and Christian Science practitioners and readers. 2012 irs tax forms 1040a Ministers Most services you perform as a minister, priest, rabbi, etc. 2012 irs tax forms 1040a , are ministerial services. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a You are considered to control, conduct, and maintain a religious organization if you direct, manage, or promote the organization's activities. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a Services for nonreligious organizations. 2012 irs tax forms 1040a   Your services for a nonreligious organization are ministerial services if the services are assigned or designated by your church. 2012 irs tax forms 1040a Assigned or designated services qualify even if they do not involve performing sacerdotal functions or conducting religious worship. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a Services that are not part of your ministry. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a The following are not ministerial services. 2012 irs tax forms 1040a Services you perform for nonreligious organizations other than the services stated above. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a These services are not ministerial services even if you are performing sacerdotal functions or conducting religious worship. 2012 irs tax forms 1040a (For example, if you perform services as a chaplain in the Armed Forces of the United States, those services are not ministerial services. 2012 irs tax forms 1040a ) Services you perform in a government-owned and operated hospital. 2012 irs tax forms 1040a (These services are considered performed by a government employee, not by a minister as part of the ministry. 2012 irs tax forms 1040a ) 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. 2012 irs tax forms 1040a Books or articles. 2012 irs tax forms 1040a   Writing religious books or articles is considered to be in the exercise of your ministry and is considered a ministerial service. 2012 irs tax forms 1040a   This rule also applies to members of religious orders and to Christian Science practitioners and readers. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a The services are considered ministerial because you perform them as an agent of the order. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a Effect of employee status. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a This result is true even if you have taken a vow of poverty. 2012 irs tax forms 1040a Example. 2012 irs tax forms 1040a Pat Brown and Chris Green are members of a religious order and have taken vows of poverty. 2012 irs tax forms 1040a They renounce all claims to their earnings. 2012 irs tax forms 1040a The earnings belong to the order. 2012 irs tax forms 1040a Pat is a licensed attorney. 2012 irs tax forms 1040a The superiors of the order instructed her to get a job with a law firm. 2012 irs tax forms 1040a Pat joined a law firm as an employee and, as she requested, the firm made the salary payments directly to the order. 2012 irs tax forms 1040a Chris is a secretary. 2012 irs tax forms 1040a The superiors of the order instructed him to accept a job with the business office of the church that supervises the order. 2012 irs tax forms 1040a Chris took the job and gave all his earnings to the order. 2012 irs tax forms 1040a Pat's services are not duties required by the order. 2012 irs tax forms 1040a Her earnings are subject to social security and Medicare tax under FICA and to federal income tax. 2012 irs tax forms 1040a Chris' services are duties required by the order. 2012 irs tax forms 1040a He is acting as an agent of the order and not as an employee of a third party. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a Christian Science Practitioners and Readers Services you perform as a Christian Science practitioner or reader in the exercise of your profession are ministerial services. 2012 irs tax forms 1040a Amounts you receive for performing these services are generally subject to SE tax. 2012 irs tax forms 1040a You may request an exemption from SE tax, discussed next, which applies only to those services. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a They do not have to request the exemption. 2012 irs tax forms 1040a Who cannot be exempt. 2012 irs tax forms 1040a   You cannot be exempt from SE tax if you made one of the following elections to be covered under social security. 2012 irs tax forms 1040a These elections are irrevocable. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a You elected before 1968 to be covered under social security for your ministerial services. 2012 irs tax forms 1040a Requesting exemption. 2012 irs tax forms 1040a    Table 2, earlier, briefly summarizes the procedure for requesting exemption from the SE tax. 2012 irs tax forms 1040a More detailed explanations follow. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a It does not apply to any other self-employment income. 2012 irs tax forms 1040a Table 2. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a You file Form 4361, described below under Requesting Exemption—Form 4361 . 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a You file for other than economic reasons. 2012 irs tax forms 1040a 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). 2012 irs tax forms 1040a This requirement does not apply to Christian Science practitioners or readers. 2012 irs tax forms 1040a You establish that the organization that ordained, commissioned, or licensed you, or your religious order, is a tax-exempt religious organization. 2012 irs tax forms 1040a You establish that the organization is a church or a convention or association of churches. 2012 irs tax forms 1040a You did not make an election discussed earlier under Who cannot be exempt . 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a Requesting Exemption—Form 4361 To request exemption from SE tax, file Form 4361 in triplicate (original and two copies) with the IRS. 2012 irs tax forms 1040a The IRS will return to you a copy of the Form 4361 that you filed indicating whether it has approved your exemption. 2012 irs tax forms 1040a If it is approved, keep the approved copy of Form 4361 in your permanent records. 2012 irs tax forms 1040a When to file. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a You have net earnings from self-employment of at least $400. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a The 2 years do not have to be consecutive tax years. 2012 irs tax forms 1040a    The approval process can take some time, so you should file Form 4361 as soon as possible. 2012 irs tax forms 1040a Example 1. 2012 irs tax forms 1040a Rev. 2012 irs tax forms 1040a Lawrence Jaeger, a clergyman ordained in 2013, has net self-employment earnings as a minister of $450 in 2013 and $500 in 2014. 2012 irs tax forms 1040a He must file his application for exemption by the due date, including extensions, for his 2014 income tax return. 2012 irs tax forms 1040a However, if Rev. 2012 irs tax forms 1040a Jaeger does not receive IRS approval for an exemption by April 15, 2015, his SE tax for 2014 is due by that date. 2012 irs tax forms 1040a Example 2. 2012 irs tax forms 1040a Rev. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a She must file her application for exemption by the due date, including extensions, for her 2014 income tax return. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a Example 3. 2012 irs tax forms 1040a In 2011, Rev. 2012 irs tax forms 1040a David Moss was ordained a minister and had $700 in net self-employment earnings as a minister. 2012 irs tax forms 1040a In 2012, he received $1,000 as a minister, but his related expenses were over $1,000. 2012 irs tax forms 1040a Therefore, he had no net self-employment earnings as a minister in 2012. 2012 irs tax forms 1040a Also in 2012, he opened a book store and had $8,000 in net self-employment earnings from the store. 2012 irs tax forms 1040a In 2013, he had net self-employment earnings of $1,500 as a minister and $10,000 net self-employment earnings from the store. 2012 irs tax forms 1040a Rev. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a Thus, he must file his application for exemption by the due date, including extensions, for his 2013 income tax return. 2012 irs tax forms 1040a Death of individual. 2012 irs tax forms 1040a   The right to file an application for exemption ends with an individual's death. 2012 irs tax forms 1040a A surviving spouse, executor, or administrator cannot file an exemption application for a deceased clergy member. 2012 irs tax forms 1040a Effective date of exemption. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a Once the exemption is approved, it is irrevocable. 2012 irs tax forms 1040a Example. 2012 irs tax forms 1040a Rev. 2012 irs tax forms 1040a Trudy Austin, ordained in 2010, had $400 or more in net self-employment earnings as a minister in both 2010 and 2013. 2012 irs tax forms 1040a She files an application for exemption on February 20, 2014. 2012 irs tax forms 1040a If an exemption is granted, it is effective for 2010 and the following years. 2012 irs tax forms 1040a Refunds of SE tax. 2012 irs tax forms 1040a   If, after receiving an approved Form 4361, you find that you overpaid SE tax, you can file a claim for refund on Form 1040X. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a A return you filed, or tax you paid, before the due date is considered to have been filed or paid on the due date. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a Exception. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a However, if you pay your benefits back, you may be considered for exemption. 2012 irs tax forms 1040a Contact your local Social Security Administration office to find out the amount you must pay back. 2012 irs tax forms 1040a Eligibility requirements. 2012 irs tax forms 1040a   To claim this exemption from SE tax, all the following requirements must be met. 2012 irs tax forms 1040a You must file Form 4029, discussed later under Requesting Exemption—Form 4029 . 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a The sect or division must complete part of the form. 2012 irs tax forms 1040a The IRS will return to you a copy of the Form 4029 that you filed indicating whether it has approved your exemption. 2012 irs tax forms 1040a If it is approved, keep the approved copy of Form 4029 in your permanent records. 2012 irs tax forms 1040a When to file. 2012 irs tax forms 1040a   You can file Form 4029 at any time. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a See Effective date of exemption next for information on when the newly approved exemption would become effective. 2012 irs tax forms 1040a    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. 2012 irs tax forms 1040a Effective date of exemption. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a (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. 2012 irs tax forms 1040a )   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. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a The exemption will end for the tax year where you or your sect/division first fails to meet the eligibility requirements. 2012 irs tax forms 1040a Refunds of SE tax paid. 2012 irs tax forms 1040a    To get a refund of any SE tax you paid while the exemption was in effect, file Form 1040X. 2012 irs tax forms 1040a For information on filing this form, see Refunds of SE tax under Requesting Exemption—Form 4361, earlier. 2012 irs tax forms 1040a Exemption From FICA Taxes Generally, under FICA, the employer and the employee each pay half of the social security and Medicare tax. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a A partnership in which each partner holds a religious exemption from social security and Medicare is an employer for this purpose. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a Information for employers. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a Form W-2. 2012 irs tax forms 1040a   When preparing a Form W-2 for an employee with an approved Form 4029, enter “Form 4029” in box 14, “Other. 2012 irs tax forms 1040a ” Do not make any entries in boxes 3, 4, 5, or 6. 2012 irs tax forms 1040a Forms 941, 943, and 944. 2012 irs tax forms 1040a   If both you and your employee have received approved Forms 4029, do not include these exempt wages on the following forms. 2012 irs tax forms 1040a Instead, follow the instructions given below. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a Effective date. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a Regular method. 2012 irs tax forms 1040a Nonfarm optional method. 2012 irs tax forms 1040a You may find Worksheets 1 through 4 helpful in figuring your net earnings from self-employment. 2012 irs tax forms 1040a Blank worksheets are in the back of this publication, after the Comprehensive Example. 2012 irs tax forms 1040a Regular Method Most people use the regular method. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a Then, subtract your allowable business deductions and multiply the difference by 92. 2012 irs tax forms 1040a 35% (. 2012 irs tax forms 1040a 9235). 2012 irs tax forms 1040a Use Schedule SE (Form 1040) to figure your net earnings and SE tax. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a 35% (. 2012 irs tax forms 1040a 9235). 2012 irs tax forms 1040a Do not reduce your wages by any business deductions when making this computation. 2012 irs tax forms 1040a Use Schedule SE (Form 1040), Section B, to figure your net earnings and SE tax. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a Amounts included in gross income. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a , 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. 2012 irs tax forms 1040a This amount is also subject to income tax. 2012 irs tax forms 1040a   For the income tax treatment of items (2) and (4), see Income Tax: Income and Expenses , later. 2012 irs tax forms 1040a Example. 2012 irs tax forms 1040a Pastor Roger Adams receives an annual salary of $39,000 as a full-time minister. 2012 irs tax forms 1040a The $39,000 includes $5,000 that is designated as a rental allowance to pay utilities. 2012 irs tax forms 1040a His church owns a parsonage that has a fair rental value of $12,000 per year. 2012 irs tax forms 1040a The church gives Pastor Adams the use of the parsonage. 2012 irs tax forms 1040a He is not exempt from SE tax. 2012 irs tax forms 1040a He must include $51,000 ($39,000 plus $12,000) when figuring his net earnings for SE tax purposes. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a Overseas duty. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a S. 2012 irs tax forms 1040a citizen or resident alien serving abroad and living in a foreign country. 2012 irs tax forms 1040a   For information on excluding foreign earned income or the foreign housing amount, see Publication 54. 2012 irs tax forms 1040a Example. 2012 irs tax forms 1040a Diane Jones was the minister of a U. 2012 irs tax forms 1040a S. 2012 irs tax forms 1040a church in Mexico. 2012 irs tax forms 1040a She earned $35,000 in that position and was able to exclude it all for income tax purposes under the foreign earned income exclusion. 2012 irs tax forms 1040a The United States does not have a social security agreement with Mexico, so Mrs. 2012 irs tax forms 1040a Jones is subject to U. 2012 irs tax forms 1040a S. 2012 irs tax forms 1040a SE tax and must include $35,000 when figuring net earnings from self-employment. 2012 irs tax forms 1040a Specified U. 2012 irs tax forms 1040a S. 2012 irs tax forms 1040a possessions. 2012 irs tax forms 1040a    The exclusion from gross income for amounts derived from American Samoa or Puerto Rico does not apply in computing net earnings from self-employment. 2012 irs tax forms 1040a Also see Residents of Puerto Rico, the U. 2012 irs tax forms 1040a S. 2012 irs tax forms 1040a Virgin Islands, Guam, the CNMI, and American Samoa , earlier, under U. 2012 irs tax forms 1040a S. 2012 irs tax forms 1040a Citizens and Resident and Nonresident Aliens. 2012 irs tax forms 1040a Amounts not included in gross income. 2012 irs tax forms 1040a   Do not include the following amounts in gross income when figuring your net earnings from self-employment. 2012 irs tax forms 1040a Offerings that others made to the church. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a Pension payments or retirement allowances you receive for your past ministerial services. 2012 irs tax forms 1040a The rental value of a parsonage or a parsonage allowance provided to you after you retire. 2012 irs tax forms 1040a Allowable deductions. 2012 irs tax forms 1040a   When figuring your net earnings from self-employment, deduct all your expenses related to your ministerial services performed as a self-employed person. 2012 irs tax forms 1040a These are ministerial expenses you incurred while working other than as a common-law employee of the church. 2012 irs tax forms 1040a They include expenses incurred in performing marriages and baptisms, and in delivering speeches. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a   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 . 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a Do not complete Schedule C or C-EZ (Form 1040). 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a Employee reimbursement arrangements. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a Ask your employer if you are not sure if it reimburses you using an accountable or a nonaccountable plan. 2012 irs tax forms 1040a Accountable plans. 2012 irs tax forms 1040a   To be an accountable plan, your employer's reimbursement arrangement must include all three of the following rules. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a You must adequately account to your employer for these expenses within a reasonable period of time. 2012 irs tax forms 1040a You must return any excess reimbursement or allowance within a reasonable period of time. 2012 irs tax forms 1040a   The reimbursement is not reported on your Form W-2. 2012 irs tax forms 1040a Generally, if your expenses equal your reimbursement, you have no deduction. 2012 irs tax forms 1040a If your expenses are more than your reimbursement, you can deduct your excess expenses for SE tax and income tax purposes. 2012 irs tax forms 1040a Nonaccountable plan. 2012 irs tax forms 1040a   A nonaccountable plan is a reimbursement arrangement that does not meet all three of the rules listed under Accountable plans above. 2012 irs tax forms 1040a In addition, even if your employer has an accountable plan, the following payments will be treated as being paid under a nonaccountable plan. 2012 irs tax forms 1040a Excess reimbursements you fail to return to your employer. 2012 irs tax forms 1040a Reimbursement of nondeductible expenses related to your employer's business. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a   For more information on accountable and nonaccountable plans, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a The tax rate for the social security part is 12. 2012 irs tax forms 1040a 4%. 2012 irs tax forms 1040a In addition, all of your net earnings are subject to the Medicare (hospital insurance) part of the SE tax. 2012 irs tax forms 1040a This tax rate is 2. 2012 irs tax forms 1040a 9%. 2012 irs tax forms 1040a The combined self-employment tax rate is 15. 2012 irs tax forms 1040a 3%. 2012 irs tax forms 1040a Additional Medicare Tax. 2012 irs tax forms 1040a   Beginning in 2013, a 0. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a Medicare wages and self-employment income are combined to determine if income exceeds the threshold. 2012 irs tax forms 1040a A self-employment loss is not considered for purposes of this tax. 2012 irs tax forms 1040a RRTA compensation is separately compared to the threshold. 2012 irs tax forms 1040a For more information, see Form 8959, Additional Medicare Tax, and its separate instructions. 2012 irs tax forms 1040a Nonfarm Optional Method You may be able to use the nonfarm optional method for figuring your net earnings from self-employment. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a You may use the nonfarm optional method if you meet all the following tests. 2012 irs tax forms 1040a You are self-employed on a regular basis. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a The net earnings can be from either farm or nonfarm earnings or both. 2012 irs tax forms 1040a You have used this method less than 5 prior years. 2012 irs tax forms 1040a (There is a 5-year lifetime limit. 2012 irs tax forms 1040a ) The years do not have to be consecutive. 2012 irs tax forms 1040a Your net nonfarm profits were: Less than $5,024, and Less than 72. 2012 irs tax forms 1040a 189% of your gross nonfarm income. 2012 irs tax forms 1040a If you meet all three tests, use Table 3 to figure your net earnings from self-employment under the nonfarm optional method. 2012 irs tax forms 1040a Table 3. 2012 irs tax forms 1040a Figuring Nonfarm Net Earnings IF your gross nonfarm income is . 2012 irs tax forms 1040a . 2012 irs tax forms 1040a . 2012 irs tax forms 1040a THEN your net earnings are equal to . 2012 irs tax forms 1040a . 2012 irs tax forms 1040a . 2012 irs tax forms 1040a $6,960 or less Two-thirds of your gross nonfarm income. 2012 irs tax forms 1040a More than $6,960 $4,640. 2012 irs tax forms 1040a Actual net earnings. 2012 irs tax forms 1040a   Multiply your total earnings subject to SE tax by 92. 2012 irs tax forms 1040a 35% (. 2012 irs tax forms 1040a 9235) to get actual net earnings. 2012 irs tax forms 1040a Actual net earnings are equivalent to net earnings under the “Regular Method. 2012 irs tax forms 1040a ” More information. 2012 irs tax forms 1040a   For more information on the nonfarm optional method, see Publication 334, Tax Guide for Small Business, and the Schedule SE (Form 1040) instructions. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a Note. 2012 irs tax forms 1040a For purposes of this section, references to members of the clergy are only to ministers or members of a religious order. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a , in addition to your salary. 2012 irs tax forms 1040a If the offering is made to the religious institution, it is not taxable to you. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a However, you may be entitled to a charitable contribution deduction for the amount paid to the organization. 2012 irs tax forms 1040a For more information, see Publication 526. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a This exclusion applies only for income tax purposes. 2012 irs tax forms 1040a It does not apply for SE tax purposes, as discussed earlier under Amounts included in gross income under Self-Employment Tax: Figuring Net Earnings. 2012 irs tax forms 1040a Designation requirement. 2012 irs tax forms 1040a   The church or organization that employs you must officially designate the payment as a housing allowance before it makes the payment. 2012 irs tax forms 1040a It must designate a definite amount. 2012 irs tax forms 1040a It cannot determine the amount of the housing allowance at a later date. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a The local congregation must officially designate the part of your salary that is a housing allowance. 2012 irs tax forms 1040a However, a resolution of a national church agency can designate your housing allowance if you are directly employed by the national agency. 2012 irs tax forms 1040a Rental allowances. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a   The amount you exclude cannot be more than the fair rental value of the home, including furnishings, plus the cost of utilities. 2012 irs tax forms 1040a Fair rental value of parsonage. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a However, the exclusion cannot be more than the reasonable pay for your services. 2012 irs tax forms 1040a If you pay for the utilities, you can exclude any allowance designated for utility costs, up to your actual cost. 2012 irs tax forms 1040a Example. 2012 irs tax forms 1040a Rev. 2012 irs tax forms 1040a Joanna Baker is a full-time minister. 2012 irs tax forms 1040a The church allows her to use a parsonage that has an annual fair rental value of $24,000. 2012 irs tax forms 1040a The church pays her an annual salary of $67,000, of which $7,500 is designated for utility costs. 2012 irs tax forms 1040a Her actual utility costs during the year were $7,000. 2012 irs tax forms 1040a For income tax purposes, Rev. 2012 irs tax forms 1040a Baker excludes $31,000 from gross income ($24,000 fair rental value of the parsonage plus $7,000 from the allowance for utility costs). 2012 irs tax forms 1040a She will report $60,000 ($59,500 salary plus $500 of unused utility allowance). 2012 irs tax forms 1040a Her income for SE tax purposes, however, is $91,000 ($67,000 salary + $24,000 fair rental value of the parsonage). 2012 irs tax forms 1040a Home ownership. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a Excess rental allowance. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a   Include in the total on Form 1040, line 7. 2012 irs tax forms 1040a On the dotted line next to line 7, enter “Excess allowance” and the amount. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a However, you can only deduct these expenses as itemized deductions on Schedule A (Form 1040). 2012 irs tax forms 1040a Retired ministers. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a Teachers or administrators. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a    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. 2012 irs tax forms 1040a In Publication 525, see Faculty lodging in the discussion on meals and lodging under Fringe Benefits. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a Theological students. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a Traveling evangelists. 2012 irs tax forms 1040a   You can exclude a designated rental allowance from out-of-town churches if you meet all of the following requirements. 2012 irs tax forms 1040a You are an ordained minister. 2012 irs tax forms 1040a You perform ministerial services at churches located away from your community. 2012 irs tax forms 1040a You actually use the rental allowance to maintain your permanent home. 2012 irs tax forms 1040a Cantors. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a See Members of Religious Orders , earlier, under Social Security Coverage. 2012 irs tax forms 1040a Foreign Earned Income Certain income may be exempt from income tax if you work in a foreign country or in a specified U. 2012 irs tax forms 1040a S. 2012 irs tax forms 1040a possession. 2012 irs tax forms 1040a Publication 54 discusses the foreign earned income exclusion. 2012 irs tax forms 1040a Publication 570, Tax Guide for Individuals With Income From U. 2012 irs tax forms 1040a S. 2012 irs tax forms 1040a Possessions, covers the rules for taxpayers with income from U. 2012 irs tax forms 1040a S. 2012 irs tax forms 1040a possessions. 2012 irs tax forms 1040a You can get these free publications from the Internal Revenue Service at IRS. 2012 irs tax forms 1040a gov or from most U. 2012 irs tax forms 1040a S. 2012 irs tax forms 1040a Embassies or consulates. 2012 irs tax forms 1040a Expense Items The tax treatment of ministerial trade or business expenses, expenses allocable to tax-free income, and health insurance costs is discussed here. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a You also may have to file Form 2106, Employee Business Expenses (or Form 2106-EZ, Unreimbursed Employee Business Expenses). 2012 irs tax forms 1040a You claim these expenses as miscellaneous itemized deductions that are subject to the 2%-of-adjusted-gross-income (AGI) limit. 2012 irs tax forms 1040a See Publication 529 for more information on this limit. 2012 irs tax forms 1040a However, you cannot deduct any of your employee business expenses that are allocable to tax-free income (discussed next). 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a You cannot deduct the portion of your expenses that you allocate to your tax-free rental or parsonage allowance. 2012 irs tax forms 1040a Exception. 2012 irs tax forms 1040a   This rule does not apply to your deductions for home mortgage interest or real estate taxes on your home. 2012 irs tax forms 1040a Figuring the allocation. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a    Reduce your otherwise deductible expenses only in figuring your income tax, not your SE tax. 2012 irs tax forms 1040a Example. 2012 irs tax forms 1040a Rev. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a He incurred $4,000 of unreimbursed expenses connected with his earnings for ministerial services. 2012 irs tax forms 1040a $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. 2012 irs tax forms 1040a Rev. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a   If you receive a tax-free rental or parsonage allowance and have ministerial expenses, attach a statement to your tax return. 2012 irs tax forms 1040a The statement must contain all of the following information. 2012 irs tax forms 1040a A list of each item of taxable ministerial income by source (such as wages, salary, weddings, baptisms, etc. 2012 irs tax forms 1040a ) plus the amount. 2012 irs tax forms 1040a A list of each item of tax-free ministerial income by source (parsonage allowance) plus the amount. 2012 irs tax forms 1040a A list of each item of otherwise deductible ministerial expenses plus the amount. 2012 irs tax forms 1040a How you figured the nondeductible part of your otherwise deductible expenses. 2012 irs tax forms 1040a A statement that the other deductions claimed on your tax return are not allocable to your tax-free income. 2012 irs tax forms 1040a   See the attachments prepared for the Comprehensive Example , later. 2012 irs tax forms 1040a Following the example, you will find blank worksheets for your own use. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a If you qualify, you can take this deduction as an adjustment to income on Form 1040, line 29. 2012 irs tax forms 1040a See the Instructions for Form 1040 to figure your deduction. 2012 irs tax forms 1040a The following special rules apply to the self-employed health insurance deduction. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a You cannot take the deduction for any month you are eligible to participate in a subsidized plan of your (or your spouse's) employer. 2012 irs tax forms 1040a The deduction cannot exceed your net earnings from the business under which the insurance plan is established. 2012 irs tax forms 1040a Your net earnings under this rule do not include the income you earned as a common-law employee (discussed earlier) of a church. 2012 irs tax forms 1040a More information. 2012 irs tax forms 1040a   For more information about the self-employed health insurance deduction, see chapter 6 in Publication 535. 2012 irs tax forms 1040a Deduction for SE Tax You can deduct one-half of your SE tax in figuring adjusted gross income. 2012 irs tax forms 1040a This is an income tax deduction only, on Form 1040, line 27. 2012 irs tax forms 1040a Do not claim this deduction in figuring net earnings from self-employment subject to SE tax. 2012 irs tax forms 1040a Income Tax Withholding and Estimated Tax The federal income tax is a pay-as-you-go tax. 2012 irs tax forms 1040a You must pay the tax as you earn or receive income during the year. 2012 irs tax forms 1040a An employee usually has income tax withheld from his or her wages or salary. 2012 irs tax forms 1040a However, your salary is not subject to federal income tax withholding if both of the following conditions apply. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a Your salary is for ministerial services (see Ministerial Services , earlier). 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a Determine your estimated tax by using the worksheets in Publication 505, Tax Withholding and Estimated Tax. 2012 irs tax forms 1040a Pay the entire estimated tax for 2014 or the first installment by April 15, 2014. 2012 irs tax forms 1040a See Form 1040-ES for the different payment methods. 2012 irs tax forms 1040a The April 15 date applies whether or not your tax home and your abode are outside the United States and Puerto Rico. 2012 irs tax forms 1040a For more information, see chapter 2 of Publication 505. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a Table 4. 2012 irs tax forms 1040a 2013 Filing Requirements for Most Taxpayers IF your filing status is . 2012 irs tax forms 1040a . 2012 irs tax forms 1040a . 2012 irs tax forms 1040a AND at the end of 2013 you were* . 2012 irs tax forms 1040a . 2012 irs tax forms 1040a . 2012 irs tax forms 1040a THEN file a return if your gross income** was at least . 2012 irs tax forms 1040a . 2012 irs tax forms 1040a . 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a ** 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). 2012 irs tax forms 1040a 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). 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a Gross income includes gains, but not losses, reported on Form 8949 or Schedule D (Form 1040). 2012 irs tax forms 1040a Gross income from a business means, for example, the amount on Schedule C (Form 1040), line 7, or Schedule F (Form 1040), line 9. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a *** 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. 2012 irs tax forms 1040a Additional requirements. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a 28 or more from an electing church or church-controlled organization (see Coverage of Religious Workers (Church Employees) , earlier, under Social Security Coverage). 2012 irs tax forms 1040a Self-employment tax. 2012 irs tax forms 1040a   If you are liable for SE tax, you must file Schedule SE (Form 1040) with your return. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a You should report ministerial earnings and expenses from nonemployee ministerial services on Schedule C or C-EZ (Form 1040). 2012 irs tax forms 1040a You should then carry the net amount over to line 2 of Schedule SE (Form 1040), Section A or B. 2012 irs tax forms 1040a 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). 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a Note. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a You cannot deduct these expenses on Schedule C or C-EZ (Form 1040) as a trade or business expense. 2012 irs tax forms 1040a Exemption from SE tax. 2012 irs tax forms 1040a   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). 2012 irs tax forms 1040a Instead, enter “Exempt—Form 4361” on the dotted line next to Form 1040, line 56. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a    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). 2012 irs tax forms 1040a Instead, enter “Exempt—Form 4029” on the dotted line next to Form 1040, line 56. 2012 irs tax forms 1040a More information. 2012 irs tax forms 1040a   For more information on filing your return, including when and where to file it, see the Instructions for Form 1040. 2012 irs tax forms 1040a Retirement Savings Arrangements Retirement savings arrangements are plans that offer you a tax-favored way to save for your retirement. 2012 irs tax forms 1040a You generally can deduct your contributions to the plan. 2012 irs tax forms 1040a Your contributions and the earnings on them are not taxed until they are distributed. 2012 irs tax forms 1040a Retirement plans for the self-employed. 2012 irs tax forms 1040a   To set up one of the following plans you must be self-employed. 2012 irs tax forms 1040a SEP (simplified employee pension) plan. 2012 irs tax forms 1040a SIMPLE (savings incentive match plan for employees) plan. 2012 irs tax forms 1040a Qualified retirement plan (also called a Keogh or H. 2012 irs tax forms 1040a R. 2012 irs tax forms 1040a 10 plan). 2012 irs tax forms 1040a   The common-law rules determine whether you are an employee or a self-employed person for purposes of setting up a retirement plan. 2012 irs tax forms 1040a See Employment status for other tax purposes under Coverage of Members of the Clergy, earlier. 2012 irs tax forms 1040a This result is true even if your compensation for ministerial services (defined earlier) is subject to SE tax. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a You are not a self-employed person for purposes of setting up a retirement plan. 2012 irs tax forms 1040a This result is true even if your salary is subject to SE tax. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a   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). 2012 irs tax forms 1040a Individual retirement arrangements (IRAs). 2012 irs tax forms 1040a   The traditional IRA and the Roth IRA are two individual retirement arrangements you can use to save money for your retirement. 2012 irs tax forms 1040a 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). 2012 irs tax forms 1040a   However, your maximum contribution to a Roth IRA will be further reduced or eliminated if your adjusted gross income is above a certain amount. 2012 irs tax forms 1040a 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. 2012 irs tax forms 1040a   If you contribute to a traditional IRA, your contribution may be deductible. 2012 irs tax forms 1040a 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). 2012 irs tax forms 1040a   For more information on IRAs, see Publication 590. 2012 irs tax forms 1040a Tax-sheltered annuity plans. 2012 irs tax forms 1040a   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. 2012 irs tax forms 1040a For more