A minister receives a salary plus a housing allowance. Is the housing allowance income? Where do the minister report it?

A minister's housing allowance, sometimes called a parsonage allowance or a rental allowance, is excludable from gross income for income tax purposes, but not for self-employment tax purposes.

If you are a minister and receive as part of your salary (as a minister) an amount officially designated as a rental allowance, you can exclude from gross income the amount that is used to provide or rent a home. However, the exclusion is limited to the lesser of the fair market rental value (including furnishing, utilities, garage, etc.), the amount officially designated (in advance of payment) as a rental or housing allowance, or the actual amount used to provide a home, and cannot exceed what is reasonable pay for your services. The payments must be used in the year received.

If housing is furnished to you by your congregation as pay for your services as a minister, the exclusion cannot be more than what is reasonable pay for your services, and is limited to the fair market rental value (including furnishings, utilities, garage, etc.) of the home.

If you own your home and you receive a housing allowance as part of your pay, for your services as a minister, the exclusion cannot be more than the smaller of the following:

An amount which represents reasonable pay for your services as a minister.

For additional information on housing allowance, refer to Publication 517, Social Security and Other Information for the Members of the Clergy and Religious Workers. For information on earnings for clergy and reporting of self-employment tax, refer to Tax Topic 417, Earnings for clergy.

Are partners considered employees of a partnership or are they self-employed?

Partners are considered to be self-employed. If you are a member of a partnership that carries on a trade or business, your distributive share of its income or loss from that trade or business is net earnings from self-employment. Limited partners are subject to self-employment tax only on guaranteed payments, such as salary and professional fees for services rendered.

We are about to hire employees and need to know how much tax to take out and where to send this money?

You will need to secure a completed Form W-4 (PDF), Employee's Withholding Allowance Certificate, from each employee. You will need Publication 15, Circular E, Employer's Tax Guide, and Publication 15-A (PDF), Employer's Supplemental Tax Guide, to determine the amount of withholding and for directions on depositing the withholding amounts and other employment taxes. Publication 15T, New Withholding Tables contains the revised withholding tables. The change is a result of the Jobs and Growth Tax Relief Reconciliation Act of 2003. This publication is a supplement to Publication 15.

Generally, employers will quarterly file Form 941 (PDF), Employer's Quarterly Federal Tax Return, and annually file Form 940 (PDF), Employer's Annual Federal Unemployment Tax Return (FUTA), and Form W-2 (PDF), Wage and Tax Statement, with Form W-3 (PDF), Transmittal of Income and Tax Statements.

If a new employee has reached the limit for social security wage base with a previous employer in the same year, does the new employer need to withhold FICA taxes on wages paid for both the company and employee?

Yes, the social security wages base limit is applied to each separate employer. The individual employee is subject to social security taxes up to the maximum amount from each employer. As a result of an employee working for two or more employers in the same year, social security tax in excess of the maximum wage base may be withheld from his or her pay. An employee can claim the excess of social security tax withheld from pay resulting from working for two or more employers as a credit against the employee's income tax when filing Form 1040 (PDF), U.S. Individual Income Tax Return. However, there is no provision for an employer to get a credit for the employer portion of social security tax paid in this situation. There is no wage limit on the Hospital Insurance tax.

I am self-employed. How do I report my income and how do I pay Medicare and social security taxes?

Your self-employment income is reported on Form 1040, Schedule C (PDF), Profit or Loss from Business, or on Form 1040, Schedule C-EZ (PDF), Net Profit from Business.

Your Medicare and social security taxes are reported on Form 1040, Schedule SE (PDF), Self-Employment Tax.

As a self-employed person, you pay your Medicare and social security taxes the same way you pay your income taxes. If you expect to owe less than $1,000 in total taxes, you can pay them when you file your income tax return. If you expect to owe $1,000 or more in total taxes, you will need to make estimated tax payments. These payments are made quarterly using Form 1040-ES (PDF), Estimated Tax for Individuals. You will need to figure these taxes at the beginning of the year. To learn about figuring and making estimated tax payments, please refer to Publication 505, Tax Withholding and Estimated Tax.