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Home // New Shluchim // Handbook For New Shluchim


TAXES

This section will cover:
Income tax
• Parsonage
• SUI
• FUTA
• FICA
Property tax
• Home
• moisad

INCOME TAX
You have federal, state and city tax. You will be able to offset them if you earn too little money and are entered into the Earned Income Program. You may even be entitled to a refund. The easiest thing to do is speak to your accountant or you can opt to buy a tax software program and a bottle of Tylenol.

PARSONAGE
Parsonage is a tool that helps clergy members reduce their income taxes. This is accomplished by having the organization pay the Rabbi’s personal mortgage (rent) and utilities directly to the bank and/or provider.
Parsonage is somewhat of a confusing item even for some accountants. Some accountants that do not deal with non-profits are practically clueless as to what parsonage is.
In brief:
Essentially by the organization paying these bills directly, clergy members get to save the State and federal taxes on these bills (which could be as high as 10 – 15%). There are a couple of additional things that you should be aware of:
1. Telephone bills are not parsonage.
2. You will still be subject to the SS/Medicare (FICA) on this income, which in itself is a whopping 15.3%. I realize that this seems unfair as one could argue that the money is never seen by the Rabbi, as it is sent directly to the bank. Don’t complain; you are still saving money.        
For example:
Say you get paid $40,000 a year plus your parsonage. Your parsonage, which is your housing cost, could be another $20,000 - $30,000. Technically, your income is now as much as $70,000.
That parsonage does not figure into your income for Federal, State, or City Income Tax, but does count for your SS Tax. For your income tax purposes you are making $40,000, not $70,000.
This saves you on your income tax liabilities but not on your SS/Medicare (FICA) tax liabilities.
YIDDISHE KUP.
If your Chabad House operates out of your personal residence then you can claim part of your house as a business expense, and therefore reduce your parsonage which will in turn reduce your FICA payments.
In fact, even if your house is your home, you may still be able to claim a small part of your house as a business expense provided it is designated Chabad House domain. For example, designated area for Chabad sleepover Shabbat guests and the like; (not your kids bedrooms).   

STATE UNEMPLOYMENT INSURANCE (SUI)      
Most states require employers to withhold amounts for state income tax and to pay state unemployment and other taxes. These state payroll taxes are paid quarterly. In some localities, you must also withhold local taxes. State Unemployment Insurance (also called SUI, UI, UC, or unemployment) is a nationwide program created to provide partial wage replacement to unemployed workers while they look for employment. Employers are assigned a SUI rate based on their experience and are informed of their "experience" rate yearly. New employers are assigned a rate until they have filed unemployment taxes for a period of time that varies by state.
SUI is practically a tax. It is a fund that you are mandated to put about 4.0% (see
http://www.paycycle.com/resources/resources.jsp) of the gross payroll that will pay unemployment benefits for employees that YOU fire, as opposed to employees quitting on their own. Please remember that in a non-profit organization you are an employee. You may not feel like an employee but you are. Well, the more employees that are fired (which translates into more unemployment claims), the higher your rate will be.

FEDERAL UNEMPLOYMENT TAX ACT (FUTA)
Please see SUI.
Interesting to add, it says in section 15 A that if you are exempt under 501 ( c ) 3 statute, then you are exempt from paying into FUTA , and it concludes “This exemption cannot be waived” meaning to say that you cannot pay even if you wanted too (as opposed to SUI).

SOCIAL SECURITY/MEDICARE (FICA)
Ouch!! This one does hurt but it is vital and most probably the one that will pay you back when your Kapitol reaches the higher numbers. The current rate is 15.3% of your income. The purpose of this tax is: 1. To coerce you to save money for when you retire or reach a certain age, (which is subject to change). 2. To assist you with medical insurance when you get up there.
If you are an employee then you are only obligated to pay 7.65% and your employer must match you.
If you are responsible to raise your own funds, this is a moot point, as either way you pay. 
Depending on how much money you put in the system is how much you will get out and receive in assistance.

As a member of the clergy, you have the option of opting out of the FICA tax (savings) and save yourself the 7.65% and of course saving your employer the same. To object you must file Form 4361.  The form must be filed before the due date of your tax return for the second taxable year in which you earned $400 or more from work as a member of the clergy. The social security self employment tax exemption is irrevocable.
Some people advocate that this is a great idea, as you can save yourself a serious chunk of change. However, be forewarned. If you opt out of the system the following are the consequences: 1. You lose all death benefits that your family would get upon your passing. 2. You will lose some much needed retirement money. 3. You will lose Medicare (as in your health benefits).
Others argue, well I will take this 15.3% and invest it in mutual funds and I will have a tremendous nest egg, so who needs Social Security/Medicare? The answers lies on how disciplined you are. A popular strong recommendation is do NOT opt out of the system. It is a foolhardy and dangerous thing to do.   
YIDDISHE KUP
If you are reading this too late and you have already opted out. You can still salvage the situation by getting a second job that is not of religious nature. This time they will not allow you to opt out, as you are not clergy when it comes to your second job of cleaning the Chabad House.

PROPERTY TAXES

MOISAD
If the property is owned by the moisad and the moisad is 501 (c)3, then you do not have to pay a single solitary dime on property tax. Once again, it is not automatic. You need to file paperwork …….with the State. This paperwork must include copies of your exempt status, budget, list of employees and their salaries, and other pertinent information. It can be a cumbersome task. It is a good time to befriend a notary public as you will need them.
You may have to pay taxes on your Moisad’s property until you get it rolling. Do not fret, with enough nudging they will refund you the money from the date that you filed. Having said that, do not wait a couple of years until you file as that is like throwing money to the wind.
HOME
If you own your own home and it is not owned by the Moisad then you will have to pay property taxes like the rest of the planet. HOWEVER, as a member of the clergy, there is something called ‘clergy tax exemption’ which will not eliminate, but reduce your taxes -as much as $1,500.00 in NY State. It is a simple one page form that has to be renewed each year.    
For more information check out these links.
http://www.wwwebtax.com/income/clergy.htm
http://www.unclefed.com/IRS-Forms/2001/HTML/p51702.html

→So, do I have to pay tax on my housing allowance?
There is no tax to report on your tax return for the value of a housing allowance provided to a duly ordained rabbi, or cantor. A housing allowance paid to you if you are a duly ordained minister as part of your salary is not taxable income on your tax return to the extent you use the housing allowance, in the tax year received, to provide a home or to pay utilities for a home with which you are provided. This is true even if the housing allowance is used as a down payment to buy a house.
You must be ordained to qualify for this tax free treatment. Special tax rules apply.
The amount of the housing allowance that you can exclude from your taxable income on your tax return cannot be more than the reasonable compensation for your services as a minister. The organization that employs you must officially designate the housing allowance payment as a housing allowance before the payment is made. A definite amount must be designated as the housing allowance; the amount of the housing allowance cannot be determined at a later date.
A housing allowance is subject to self employment tax.
Other tax provisions may apply.

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