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Forum -> Working Women
Do I gain or lose out from parsonage payment



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amother
OP


 

Post Tue, Feb 25 2020, 9:58 am
hi, I was wondering if there was anyone here that can explain this to me (possibly accountants)

my husband gets some of his payment as a parsonage check.

someone told me yesterday he should probably refuse it and get paid regularly because he will lose out in the end,- is this correct? can you please explain this to me?


from what I understood from her is that since the money paid through parsonage is not taxed therefore the employer is not paying his share of social security on this money so later on he will barely have money that his employer matched.

I live in NY now but am from a different country so I am very unfamiliar with all this..
thanks so much for clarifying this for me!
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Hashem_Yaazor




 
 
    
 

Post Tue, Feb 25 2020, 10:16 am
While it is correct he will owe all the social security and will need to pay that at tax time, some people find it beneficial because it makes them eligible for Medicaid. You really would need a financial advisor to look at your situation and help you decide what's in your best interest.
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amother
OP


 

Post Tue, Feb 25 2020, 10:18 am
So he will need to pay now double social security?
For himself and the employers part?

So im not understanding what is the benefits of parsonage? Is it just saving the tax bit.?and since he is paying double social then it doesn't even save! He may as well pay regular taxes?
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chicco




 
 
    
 

Post Tue, Feb 25 2020, 10:20 am
If you take parsonage, you are then subject to self employment tax. For some people this ends up being less than regular income tax, for other people more. It really depends.
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amother
Copper


 

Post Tue, Feb 25 2020, 10:23 am
We were told that even self-employment is better than parsonage because of Social Security, that doesn't take parsonage into account (or something like that).

Some people told us to take part of our salary as parsonage, to get a higher tax return, but an accountant we spoke to told us that he doesn't recommend it.

I don't really understand more than you, just sharing our experience.
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Hashem_Yaazor




 
 
    
 

Post Tue, Feb 25 2020, 10:24 am
amother [ OP ] wrote:
So he will need to pay now double social security?
For himself and the employers part?

So im not understanding what is the benefits of parsonage? Is it just saving the tax bit.?and since he is paying double social then it doesn't even save! He may as well pay regular taxes?

It started as a perk to those in the clergy, serving religious functions, to be allowed to live on property and not count their home expenses as income in gross income reported to the state in order to still be allowed on Medicaid. Saving money by having government insurance for many people is way more than the extra they will owe on social security.
But it's not in everyone's best interest to claim parsonage.
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hodeez




 
 
    
 

Post Tue, Feb 25 2020, 10:26 am
It's excluded from income tax but you may need to pay Self employment tax
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amother
Orchid


 

Post Tue, Feb 25 2020, 10:47 am
I am a tax accountant. Every persons tax return looks different so depending on your specific situation it may or may not be beneficial to take parsonage.

In general:
W2 (regular employee) earnings are subject to income tax and 15.3% fica (social security and Medicare) the benefit of being employed this way is that your employer pays half the fica so you pay income tax (at whatever rate your are subject to) plus 7.65% fica.

Parsonage is exempt from income tax but subject to fica. Because this is not employee wages your are paying the full 15.3%.

From a tax perspective as long your marginal income tax rate is more than 7.65% you benefit from taking parsonage. But remember this does not take eligibility for various tax credits or other personalized parts of your tax return into consideration.
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amother
OP


 

Post Tue, Feb 25 2020, 10:55 am
amother [ Orchid ] wrote:
I am a tax accountant. Every persons tax return looks different so depending on your specific situation it may or may not be beneficial to take parsonage.

In general:
W2 (regular employee) earnings are subject to income tax and 15.3% fica (social security and Medicare) the benefit of being employed this way is that your employer pays half the fica so you pay income tax (at whatever rate your are subject to) plus 7.65% fica.

Parsonage is exempt from income tax but subject to fica. Because this is not employee wages your are paying the full 15.3%.

From a tax perspective as long your marginal income tax rate is more than 7.65% you benefit from taking parsonage. But remember this does not take eligibility for various tax credits or other personalized parts of your tax return into consideration.
[u]

thanks everyone you are so helpful

regarding the last paragraph,
why would my marginal income tax rate be more that 7.65%? im confused about what you mean?
if I take parsonage I would be paying the full 15.3%- so 7.65 on top of what I would pay if employed.


thanks so much again I really appreciate it.
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amother
Orchid


 

Post Tue, Feb 25 2020, 11:18 am
amother [ OP ] wrote:
[u]

thanks everyone you are so helpful

regarding the last paragraph,
why would my marginal income tax rate be more that 7.65%? im confused about what you mean?
if I take parsonage I would be paying the full 15.3%- so 7.65 on top of what I would pay if employed.


thanks so much again I really appreciate it.


Parsonage income: you pay 15.3% (both parts of fica)
Wages: you pay 7.65% (half) fica + income tax
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amother
Burgundy


 

Post Tue, Feb 25 2020, 2:22 pm
Doesn't this depend which programs count parsonage and which do not (which can also vary with your agency e.g. different Section 8 offices can have their own rules)?

If anyone knows specifically whether these take parsonage into account, please post here.
Food Stamps
WIC
Medicare for children of employee
Section 8 Housing assistance
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Hashem_Yaazor




 
 
    
 

Post Tue, Feb 25 2020, 3:22 pm
Someone asked me to look into foodstamps for her, so that I know the answer to: no. I'm not sure what will happen if you don't report parsonage, but according to the rules, it doesn't seem like parsonage should be excluded as income received, and therefore the full salary+parsonage should be reported.
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