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Form 1040x Example

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Form 1040x Example

Form 1040x example 15. Form 1040x example   Estimated Tax Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: Special Estimated Tax Rules for Qualified FarmersQualified Farmer Special Rules for Qualified Farmers Estimated Tax Penalty for 2013 What's New Net Investment Income Tax. Form 1040x example . Form 1040x example  For tax years beginning in 2013, you may be subject to Net Investment Income Tax (NIIT). Form 1040x example NIIT is a 3. Form 1040x example 8% tax on the lesser of net investment income or the excess of your modified adjusted gross income (MAGI) over the threshold amount. Form 1040x example NIIT may need to be included when calculating your estimated tax. Form 1040x example For more information, see Publication 505,Tax Withholding and Estimated Tax. Form 1040x example Additional Medicare Tax. Form 1040x example  For tax years beginning in 2013, a 0. Form 1040x example 9% Additional Medicare Tax applies to Medicare wages, Railroad Retirement Tax Act (RRTA) compensation, and self-employment income over a threshold amount based on your filing status. Form 1040x example You may need to include this amount when figuring your estimated tax. Form 1040x example For more information, see Publication 505. Form 1040x example Introduction Estimated tax is the method used to pay tax on income that is not subject to withholding. Form 1040x example See Publication 505 for the general rules and requirements for paying estimated tax. Form 1040x example If you are a qualified farmer, defined below, you are subject to the special rules covered in this chapter for paying estimated tax. Form 1040x example Topics - This chapter discusses: Special estimated tax rules for qualified farmers Estimated tax penalty Useful Items - You may want to see: Publication 505 Tax Withholding and Estimated Tax Form (and Instructions) 1040 U. Form 1040x example S. Form 1040x example Individual Income Tax Return 1040-ES Estimated Tax for Individuals 2210-F Underpayment of Estimated Tax by Farmers and Fishermen See chapter 16 for information about getting publications and forms. Form 1040x example Special Estimated Tax Rules for Qualified Farmers Special rules apply to the payment of estimated tax by individuals who are qualified farmers. Form 1040x example If you are not a qualified farmer as defined next, see Publication 505 for the estimated tax rules that apply. Form 1040x example Qualified Farmer An individual is a qualified farmer for 2013 if at least two-thirds of his or her gross income from all sources for 2012 or 2013 was from farming. Form 1040x example See Gross Income , next, for information on how to figure your gross income from all sources and see Gross Income From Farming , later, for information on how to figure your gross income from farming. Form 1040x example See also Percentage From Farming , later, for information on how to determine the percentage of your gross income from farming. Form 1040x example Gross Income Gross income is all income you receive in the form of money, goods, property, and services that is not exempt from income tax. Form 1040x example On a joint return, you must add your spouse's gross income to your gross income. Form 1040x example To decide whether two-thirds of your gross income was from farming, use as your gross income the total of the following income (not loss) amounts from your tax return. Form 1040x example Wages, salaries, tips, etc. Form 1040x example Taxable interest. Form 1040x example Ordinary dividends. Form 1040x example Taxable refunds, credits, or offsets of state and local income taxes. Form 1040x example Alimony. Form 1040x example Gross business income from Schedule C (Form 1040). Form 1040x example Gross business receipts from Schedule C-EZ (Form 1040). Form 1040x example Capital gains from Schedule D (Form 1040). Form 1040x example Losses are not netted against gains. Form 1040x example Gains on sales of business property. Form 1040x example Taxable IRA distributions, pensions, annuities, and social security benefits. Form 1040x example Gross rental income from Schedule E (Form 1040). Form 1040x example Gross royalty income from Schedule E (Form 1040). Form 1040x example Taxable net income from an estate or trust reported on Schedule E (Form 1040). Form 1040x example Income from a Real Estate Mortgage Investment Conduit reported on Schedule E (Form 1040). Form 1040x example Gross farm rental income from Form 4835. Form 1040x example Gross farm income from Schedule F (Form 1040). Form 1040x example Your distributive share of gross income from a partnership, or limited liability company treated as a partnership, from Schedule K-1 (Form 1065). Form 1040x example Your pro rata share of gross income from an S corporation, from Schedule K-1 (Form 1120S). Form 1040x example Unemployment compensation. Form 1040x example Other income not included with any of the items listed above. Form 1040x example Gross Income From Farming Gross income from farming is income from cultivating the soil or raising agricultural commodities. Form 1040x example It includes the following amounts. Form 1040x example Income from operating a stock, dairy, poultry, bee, fruit, or truck farm. Form 1040x example Income from a plantation, ranch, nursery, range, orchard, or oyster bed. Form 1040x example Crop shares for the use of your land. Form 1040x example Gains from sales of draft, breeding, dairy, or sporting livestock. Form 1040x example Gross income from farming is the total of the following amounts from your tax return. Form 1040x example Gross farm income from Schedule F (Form 1040). Form 1040x example Gross farm rental income from Form 4835. Form 1040x example Gross farm income from Schedule E (Form 1040), Parts II and III. Form 1040x example Gains from the sale of livestock used for draft, breeding, sport, or dairy purposes reported on Form 4797. Form 1040x example For more information about income from farming, see chapter 3. Form 1040x example Farm income does not include any of the following: Wages you receive as a farm employee. Form 1040x example Income you receive from contract grain harvesting and hauling with workers and machines you furnish. Form 1040x example Gains you receive from the sale of farm land and depreciable farm equipment. Form 1040x example Percentage From Farming Figure your gross income from all sources, discussed earlier. Form 1040x example Then figure your gross income from farming, discussed earlier. Form 1040x example Divide your farm gross income by your total gross income to determine the percentage of gross income from farming. Form 1040x example Example 1. Form 1040x example Jane Smith had the following total gross income and farm gross income amounts in 2013. Form 1040x example Gross Income   Total Farm Taxable interest $3,000   Dividends 500   Rental income (Sch E) 41,500   Farm income (Sch F) 75,000 $75,000 Gain (Form 4797) 5,000 5,000 Total $125,000 $80,000 Schedule D showed gain from the sale of dairy cows carried over from Form 4797 ($5,000) in addition to a loss from the sale of corporate stock ($2,000). Form 1040x example However, that loss is not netted against the gain to figure Ms. Form 1040x example Smith's total gross income or her gross farm income. Form 1040x example Her gross farm income is 64% of her total gross income ($80,000 ÷ $125,000 = 0. Form 1040x example 64). Form 1040x example Special Rules for Qualified Farmers The following special estimated tax rules apply if you are a qualified farmer for 2013. Form 1040x example You do not have to pay estimated tax if you file your 2013 tax return and pay all the tax due by March 3, 2014. Form 1040x example You do not have to pay estimated tax if your 2013 income tax withholding (including any amount applied to your 2013 estimated tax from your 2012 return) will be at least 662/3% (. Form 1040x example 6667) of the total tax shown on your 2013 tax return or 100% of the total tax shown on your 2012 return. Form 1040x example If you must pay estimated tax, you are required to make only one estimated tax payment (your required annual payment) by January 15, 2014, using special rules to figure the amount of the payment. Form 1040x example See Required Annual Payment , next, for details. Form 1040x example Figure 15-1 presents an overview of the special estimated tax rules that apply to qualified farmers. Form 1040x example Example 2. Form 1040x example Assume the same fact as in Example 1. Form 1040x example Ms. Form 1040x example Smith's gross farm income is only 64% of her total income. Form 1040x example Therefore, based on her 2013 income, she does not qualify to use the special estimated tax rules for qualified farmers. Form 1040x example However, she does qualify if at least two-thirds of her 2012 gross income was from farming. Form 1040x example Example 3. Form 1040x example Assume the same facts as in Example 1 except that Ms. Form 1040x example Smith's farm income from Schedule F was $90,000 instead of $75,000. Form 1040x example This made her total gross income $140,000 ($3,000 + $500 + $41,500 + $90,000 + $5,000) and her farm gross income $95,000 ($90,000 + $5,000). Form 1040x example She qualifies to use the special estimated tax rules for qualified farmers, since 67. Form 1040x example 9% (at least two-thirds) of her gross income is from farming ($95,000 ÷ $140,000 = . Form 1040x example 679). Form 1040x example Required Annual Payment If you are a qualified farmer and must pay estimated tax for 2013, use the worksheet on Form 1040-ES to figure the amount of your required annual payment. Form 1040x example Apply the following special rules for qualified farmers to the worksheet. Form 1040x example On line 14a, multiply line 13c by 662/3% (. Form 1040x example 6667). Form 1040x example On line 14b, enter 100% of the tax shown on your 2012 tax return regardless of the amount of your adjusted gross income. Form 1040x example For this purpose, the “tax shown on your 2012 tax return” is the amount on line 61 of your 2012 return modified by certain adjustments. Form 1040x example For more information, see chapter 4 of Publication 505. Form 1040x example Estimated Tax Penalty for 2013 If you do not pay all your required estimated tax for 2013 by January 15, 2014, or file your 2013 return and pay any tax due by March 3, 2014, you may owe a penalty. Form 1040x example Use Form 2210-F, Underpayment of Estimated Tax by Farmers and Fishermen, to determine if you owe a penalty. Form 1040x example See the instructions for Form 2210-F. Form 1040x example Figure 15-1. Form 1040x example Estimated Tax for Farmers Please click here for the text description of the image. Form 1040x example Figure 2–A If you receive a penalty notice, do not ignore it, even if you think it is in error. Form 1040x example You may get a penalty notice even though you filed your return on time, attached Form 2210-F, and met the gross-income-from-farming requirement. Form 1040x example If you receive a penalty notice for underpaying estimated tax and you think it is in error, write to the address on the notice and explain why you think the notice is in error. Form 1040x example Include a computation similar to the one in Example 1 (earlier), showing that you met the gross income from farming requirement. 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The Form 1040x Example

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