October 27, 2008

Form W-2 Reporting for Roth Contributions in a 403(b) plan

Question:

How does a church report designated Roth contributions on its pastor's Form W-2?

Answer:

According to the IRS instructions for 2008 Form W-2, Roth contributions withheld from the pastor's pay do not reduce Box 1--Wages, tips, other compensation. The amount of the contributions should be recorded in Box 12, using code BB. Also, the Retirement Plan option in Box 13 should be checked.

October 16, 2008

Minister's Exemption from Self-Employment Tax

Question:

If a minister has acquired tax exempt status on Oct. 15, 2008, but has pastored since being ordained in 2006, is he refunded his social security and medicare taxes paid during that time?

Answer:

If a minister wishes to pursue exemption from self-employment (SE) tax--social security and medicare taxes--he must apply no later than the due date of his tax return for the second year in which has self-employment income greater than $400 any portion of which is attributable to his employment as a minister (source: instructions for IRS Form 4361).

Form 4361 requires the applicant to indicate these first two years. Publication 517 describes the process for amending earlier years' returns in order to receive a refund of previously paid SE tax. Generally, you have three years after the due date of any return to file for a refund of overpaid tax.

Answering the above question specifically, if 2006 and 2007 were the two years listed on Form 4361 and the IRS granted final approval of the application on October 15, 2008, then the minister has until April 15, 2010, to apply for a refund of SE tax related to his ministerial income in 2006. He will have until 4/15/11 to seek a refund for his 2007 overpayment.