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PDtax
PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 4512
Experience:  35 years tax experience, including four years at a Big 4 firm.
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This is for PDATax Can you help with the following? How

Resolved Question:

This is for PDATax

Can you help with the following?

How is the after-tax contribution recovered for clients who make after-tax contributions?
Upfront, last, a portion is recovered each year until fully recovered or a portion is recovered each year for the first ten years.
Please explain when housing allowance can be excluded from taxes for the clergy. Also, for the exclusion, do they have to be active or can they be retired?
Submitted: 3 years ago.
Category: Tax
Expert:  PDtax replied 3 years ago.
Hi again. PDtax on a Saturday.

How is the after-tax contribution recovered for clients who make after-tax contributions? sounds like you are talking about IRA accounts, and people putting after tax contributions in them. They come from pension plan rollovers, contributions in excess of the allowed deduction, and a few other ways.

You keep track via form 8606 of any adjustments to IRA account basis. When distributions are taken, I believe you have to take them out pro rata ($100,000 in account, $8,000 in after tax contributions, 8% of your distribution is tax-free return of your investment until you use it all).

Please explain when housing allowance can be excluded from taxes for the clergy. Also, for the exclusion, do they have to be active or can they be retired? It can be excluded as a parsonage (provided housing) or tax-free housing allowance as long as it does not exceed the cost of the housing, including rent/mortgage, taxes, insurance, utilities. Any excess is taxable as other income to the minister. One special note: the payment must be designated as a housing allowance by the church for the deduction.

I have seen these payments for retired clergy as well. The same mandate for classification is required. An example is here: http://www.mennoniteusa.org/wp-content/uploads/2011/10/Housing_Allowance2011_2012.pdf

Thanks again for asking for me.
Customer: replied 3 years ago.

Are you saying for the first one, a portion is recovered each year until fully recovered?

 

For the clergy question, is the housing allowance excludable from SE tax?

 

Expert:  PDtax replied 3 years ago.
Are you saying for the first one, a portion is recovered each year until fully recovered? Yes. Pro rata until the tax free portion is completely recovered. Plan administrators do not manage this, taxpayers have to.



For the clergy question, is the housing allowance excludable from SE tax? No. Income tax only. http://www.irs.gov/publications/p517/ar02.html is the link to IRS Pub 517.

From that Pub.:

"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. 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.

This exclusion applies only for income tax purposes. It does not apply for SE tax purposes, as discussed earlier under Amounts included in gross income under Self-Employment Tax: Figuring Net Earnings. "

Thanks again.

Brian (PD)
PDtax and other Tax Specialists are ready to help you
Customer: replied 3 years ago.
Thanks.
Expert:  PDtax replied 3 years ago.
you're welcome Diana.