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

Www freefile irs gov Publication 908 - Introductory Material Table of Contents Future Developments What's New Reminders Introduction Useful Items - You may want to see: Future Developments For the latest information about developments related to Publication 908, such as legislation enacted after it was published, go to www. Www freefile irs gov irs. Www freefile irs gov gov/pub908. Www freefile irs gov What's New Expiration of provision for catch-up contributions for IRC section 401(k) participants whose employer filed bankruptcy. Www freefile irs gov  The Pension Protection Act of 2006, P. Www freefile irs gov L. Www freefile irs gov 109-280, previously allowed additional contributions of up to $7,000 in a traditional or Roth IRA for employees who participated in an IRC section 401(k) plan of an employer that filed bankruptcy in an earlier year. Www freefile irs gov This provision was not extended for tax years beginning on or after January 1, 2010. Www freefile irs gov Automatic 6-month extension of time to file a bankruptcy estate return now available for individuals in Chapter 7 or 11 bankruptcy. Www freefile irs gov  Beginning June 24, 2011, the IRS clarified in T. Www freefile irs gov D. Www freefile irs gov 9531 that there is available an automatic 6-month extension of time to file a bankruptcy estate income tax return for individuals in Chapter 7 or Chapter 11 bankruptcy proceedings upon filing a required application. Www freefile irs gov The previous extension of time to file a bankruptcy estate return was 5 months. Www freefile irs gov Reminders The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005. Www freefile irs gov  The changes to the U. Www freefile irs gov S. Www freefile irs gov Bankruptcy Code enacted by BAPCA are incorporated throughout this publication. Www freefile irs gov Debtors filing under chapters 7, 11, 12, and 13 of the Bankruptcy Code must file all applicable federal, state, and local tax returns that become due after a case commences. Www freefile irs gov Failure to file tax returns timely or obtain an extension can cause a bankruptcy case to be converted to another chapter or dismissed. Www freefile irs gov In chapter 13 cases, the debtor must file all required tax returns for tax periods ending within 4 years of the filing of the bankruptcy petition. Www freefile irs gov Photographs of missing children. Www freefile irs gov  The IRS is a proud partner with the National Center for Missing and Exploited Children. Www freefile irs gov Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Www freefile irs gov You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Www freefile irs gov Introduction This publication is not intended to cover bankruptcy law in general, or to provide detailed discussions of the tax rules for the more complex corporate bankruptcy reorganizations or other highly technical transactions. Www freefile irs gov Additionally, this publication is not updated on an annual basis and may not reflect recent developments in bankruptcy or tax law. Www freefile irs gov If you need more guidance on the bankruptcy or tax laws applicable to your case, you should seek professional advice. Www freefile irs gov This publication explains the basic federal income tax aspects of bankruptcy. Www freefile irs gov A fundamental goal of the bankruptcy laws enacted by Congress is to give an honest debtor a financial “fresh start”. Www freefile irs gov This is accomplished through the bankruptcy discharge, which is a permanent injunction (court ordered prohibition) against the collection of certain debts as a personal liability of the debtor. Www freefile irs gov Bankruptcy proceedings begin with the filing of either a voluntary petition in the United States Bankruptcy Court, or in certain cases an involuntary petition filed by creditors. Www freefile irs gov This filing creates the bankruptcy estate. Www freefile irs gov The bankruptcy estate generally consists of all of the assets the individual or entity owns on the date the bankruptcy petition was filed. Www freefile irs gov The bankruptcy estate is treated as a separate taxable entity for individuals filing bankruptcy petitions under chapter 7 or 11 of the Bankruptcy Code, discussed later. Www freefile irs gov The tax obligations of taxable bankruptcy estates are discussed later under Individuals in Chapter 7 or 11. Www freefile irs gov Generally, when a debt owed to another person or entity is canceled, the amount canceled or forgiven is considered income that is taxed to the person owing the debt. Www freefile irs gov If a debt is canceled under a bankruptcy proceeding, the amount canceled is not income. Www freefile irs gov However, the canceled debt reduces other tax benefits to which the debtor would otherwise be entitled. Www freefile irs gov See Debt Cancellation, later. Www freefile irs gov Useful Items - You may want to see: Publication 225 Farmer's Tax Guide 525 Taxable and Nontaxable Income 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 538 Accounting Periods and Methods 544 Sales and Other Dispositions of Assets 551 Basis of Assets 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Form (and Instructions) SS-4 Application for Employer Identification Number, and separate instructions 982 Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) 1040 U. Www freefile irs gov S. Www freefile irs gov Individual Income Tax Return, and separate instructions Schedule SE (Form 1040) Self-Employment Tax 1040X Amended U. Www freefile irs gov S. Www freefile irs gov Individual Income Tax Return, and separate instructions 1041 U. Www freefile irs gov S. Www freefile irs gov Income Tax Return for Estates and Trusts, and separate instructions 1041-ES Estimated Income Tax for Estates and Trusts 1041-V Payment Voucher 4506 Request for Copy of Tax Return 4506-T Request for Transcript of Tax Return 4852 Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Www freefile irs gov 4868 Application for Automatic Extension of Time To File U. Www freefile irs gov S. Www freefile irs gov Individual Income Tax Return 7004 Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns See How To Get Tax Help, later, for information about getting these publications and forms. Www freefile irs gov Prev  Up  Next   Home   More Online Publications