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

Freefilefillableforms Index A Acquisition indebtedness, Average acquisition indebtedness. Freefilefillableforms Annuity obligations, Annuity obligation. Freefilefillableforms By gift or bequest of mortgaged property, Exception for property acquired by gift, bequest, or devise. Freefilefillableforms Change in property use, Change in use of property. Freefilefillableforms Continued debt, Continued debt. Freefilefillableforms Debt modifying existing, Modifying existing debt. Freefilefillableforms Federal financing, Certain federal financing. Freefilefillableforms For performing exempt purpose, Debt incurred in performing exempt purpose. Freefilefillableforms Obligation to return collateral, Securities loans. Freefilefillableforms Property subject to mortgage or lien, Property acquired subject to mortgage or lien. Freefilefillableforms Real property, Real property debts of qualified organizations. Freefilefillableforms Advertising income, Exploitation of Exempt Activity—Advertising Sales Agricultural organization dues, Dues of Agricultural Organizations and Business Leagues Assistance (see Tax help) B Business league dues, Dues of Agricultural Organizations and Business Leagues C Churches, Churches. Freefilefillableforms Contributions deduction, Charitable contributions deduction. Freefilefillableforms Convention or trade show activity, Convention or trade show activity. Freefilefillableforms D Debt-financed property, Income From Debt-Financed Property Acquired in liquidation, Basis for debt-financed property acquired in corporate liquidation. Freefilefillableforms Dues, agricultural organizations and business leagues, Dues of Agricultural Organizations and Business Leagues E Exchange or rental of member lists, Exchange or rental of member lists. Freefilefillableforms Excluded trade or business activities, Excluded Trade or Business Activities Exclusions, Volunteer workforce. Freefilefillableforms Sponsorship, Qualified sponsorship activities. Freefilefillableforms Exempt function income, Exempt function income. Freefilefillableforms Exploitation of exempt activity Advertising income, Exploitation of Exempt Activity—Advertising Sales Exploitation of exempt functions, Exploitation of exempt functions. Freefilefillableforms F Form 990-T, Returns and Filing Requirements Free tax services, How to Get Tax Help H Help (see Tax help) I Income from research, Income from research. Freefilefillableforms L Limits, Limits. Freefilefillableforms M More information (see Tax help) N Net operating loss deduction, Modifications Nonrecognition of gain, Nonrecognition of gain. Freefilefillableforms P Publications (see Tax help) R Rents, Rents. Freefilefillableforms Return, Returns and Filing Requirements Royalties, Royalties. Freefilefillableforms S Specific deduction, Specific deduction. Freefilefillableforms T Tax, Organizations Subject to the Tax Alternative minimum, Alternative minimum tax. Freefilefillableforms Colleges and universities, Colleges and universities. Freefilefillableforms Deposits, Federal Tax Deposits Must be Made by Electronic Funds Transfer Estimated, Payment of Tax Organizations affected, Organizations Subject to the Tax Payment, Public Inspection Requirements of Section 501(c)(3) Organizations. Freefilefillableforms Rates, The Tax and Filing Requirements Return, Returns and Filing Requirements Title-holding corporations, Title-holding corporations. Freefilefillableforms U. Freefilefillableforms S. Freefilefillableforms instrumentalities, U. Freefilefillableforms S. Freefilefillableforms instrumentalities. Freefilefillableforms Tax help, How to Get Tax Help Taxpayer Advocate, Contacting your Taxpayer Advocate. Freefilefillableforms Title-holding corporations, Title-holding corporations. Freefilefillableforms TTY/TDD information, How to Get Tax Help U Unrelated business Hospital laboratory, Nonpatient laboratory testing. Freefilefillableforms Unrelated business income, Unrelated Business Taxable Income, Income Advertising income, Exploitation of Exempt Activity—Advertising Sales Certain trusts, Special Rules for Social Clubs, VEBAs, SUBs, and GLSOs Controlled organizations, Income From Controlled Organizations Debt-financed property, Income From Debt-Financed Property Deductions, Deductions Employees beneficiary associations, Special Rules for Social Clubs, VEBAs, SUBs, and GLSOs Exclusions, Exclusions Foreign organizations, Special Rules for Foreign Organizations Income from gambling activities, Legal definition. Freefilefillableforms Income from lending securities, Income from lending securities. Freefilefillableforms Modifications, Modifications Partnership income or loss, Partnership Income or Loss Products of exempt functions, Selling of products of exempt functions. Freefilefillableforms S corporation income, S Corporation Income or Loss S corporation income or loss, S Corporation Income or Loss Social clubs, Special Rules for Social Clubs, VEBAs, SUBs, and GLSOs Veterans organizations, Special Rules for Veterans' Organizations Unrelated debt-financed income, Certain federal financing. Freefilefillableforms Average acquisition indebtedness, Average acquisition indebtedness. Freefilefillableforms Average adjusted basis, Average adjusted basis. Freefilefillableforms Computation, Computation of Debt-Financed Income Debt/basis percentage, Computation of debt/basis percentage. Freefilefillableforms Deductions, Deductions for Debt-Financed Property Gains from dispositions, Gain or loss from sale or other disposition of property. Freefilefillableforms Indeterminate property price, Indeterminate price. Freefilefillableforms Unrelated trade or business, Unrelated Trade or Business Artists facilities, Artists' facilities. Freefilefillableforms Book publishing, Book publishing. Freefilefillableforms Broadcasting rights, Broadcasting rights. Freefilefillableforms Business league's parking and bus services, Business league's parking and bus services. Freefilefillableforms Convenience of members, Convenience of members. Freefilefillableforms Convention or trade show, Convention or trade show activity. Freefilefillableforms Directory of members, Directory of members. Freefilefillableforms Distribution of low cost articles, Distribution of low cost articles. Freefilefillableforms Dual use facilities, etc. Freefilefillableforms , Dual use of assets or facilities. Freefilefillableforms Employees association sales, Employee association sales. Freefilefillableforms Exclusions, Excluded Trade or Business Activities Exploitation of exempt functions, Exploitation of exempt functions. Freefilefillableforms Gambling activities other than bingo, Gambling activities other than bingo. Freefilefillableforms Halfway house, Halfway house workshop. Freefilefillableforms Health club program, Health club program. Freefilefillableforms Hearing aid sales, Sales of hearing aids. Freefilefillableforms Hospital facilities, Hospital facilities. Freefilefillableforms Hospital services, Hospital services. Freefilefillableforms Insurance programs, Insurance programs. Freefilefillableforms Magazine publishing, Magazine publishing. Freefilefillableforms Member lists rentals, etc. Freefilefillableforms , Exchange or rental of member lists. Freefilefillableforms Membership list sales, Membership list sales. Freefilefillableforms Miniature golf course, Miniature golf course. Freefilefillableforms Museum eating facilities, Museum eating facilities. Freefilefillableforms Museum greeting card sales, Museum greeting card sales. Freefilefillableforms Pet boarding and grooming services, Pet boarding and grooming services. Freefilefillableforms Pole rentals, Pole rentals. Freefilefillableforms Public entertainment activity, Public entertainment activity. Freefilefillableforms Publishing legal notices, Publishing legal notices. Freefilefillableforms Regularly conducted, Regularly conducted. Freefilefillableforms Sales commissions, Sales commissions. Freefilefillableforms Sales of advertising space, Sales of advertising space. Freefilefillableforms School facilities, School facilities. Freefilefillableforms School handicraft shop, School handicraft shop. Freefilefillableforms Selling donated merchandise, Selling donated merchandise. Freefilefillableforms Selling endorsements, Selling endorsements. Freefilefillableforms Sponsoring entertainment events, Sponsoring entertainment events. Freefilefillableforms Substantially related, Not substantially related. Freefilefillableforms Trade or business defined, Trade or business. Freefilefillableforms Travel tour programs, Travel tour programs. Freefilefillableforms Volunteer workforce, Volunteer workforce. Freefilefillableforms Yearbook advertising, Yearbook advertising. Freefilefillableforms Youth residence, Youth residence. Freefilefillableforms Unstated trade or business Bingo games, Bingo games. Freefilefillableforms V Volunteer fire company, Excluded Trade or Business Activities W When to file, When to file. Freefilefillableforms Prev  Up     Home   More Online Publications