Hello, CC Community!
I have searched high and low to try and get an answer to this question, but I can’t seem to find anything definitive. As a clergyman, the majority of my taxes are Self-Employment taxes (which amount to 3 x what I pay in Federal taxes). There doesn’t seem to be anywhere to account for this expense on the FAFSA CSS Profile. Am I missing something?
I would so appreciate any help/guidance you could provide!
Sincerely,
AndrewOfTheForest
I don’t understand what you mean by “my… Self-Employment taxes…which amount to 3 x what I pay in Federal taxes.” Self-employment taxes are part of, and not separate from, federal taxes.
Self-employment taxes are how those who are not W-2 employees pay FICA obligations; you are just paying both they employee and what would otherwise be the employer portion of FICA (payroll) taxes. All W-2 employees pay the employee portion of FICA taxes through payroll withholding, and it’s not reported anywhere on Profile. The employer portion that you pay as a clergyman is taken as a credit on your tax return that reduces your federal AGI, so as far as reporting on Profile is concerned, you end up in the same position as a W-2 employee. It’s very likely that a school that requires Profile will also require copies of the relevant tax return, so everything will be clearly laid out for the financial aid office.
Hello, BelknapPoint, and thank you so much for taking the time to respond!
The issue is that clergy have a unique status for tax purposes: they are treated as a hybrid of a self-employed worker and a traditional employee. Clergy file Schedule SE on their 1040 and pay both the Employee and Employer portion of Social Security and Medicare tax on earned income. However, I’ve found that many standard financial aid applications aren’t setup to account for this hybrid status and, instead, take you down the “Employee” route rather than the Self-Employed route. This means that the the Employer portion of Social Security and Medicare tax (which we pay) is not accounted for in the calculation for financial aid. I’ve had to find a workaround in other situations. For example, when applying for aid though School & Student Services, I was instructed by SSS to indicate that I owned a business so as to be able to enter the amount I pay in Self-Employment tax (line 4 from Schedule 2).
But, are you saying that it’ll all “come out in the wash”?
Again, really appreciate you responding!
You are required to report taxes based on 1040 lines; that is, report what is on the requested line. If you are reporting taxes on a different line on your 1040, that information is not directly reported on the FAFSA. It’s possible it’s incorporated into another reported line, though.
For CSS, if you don’t think the information is being reflected anywhere, you can always add information in the comment section. It may not make a difference, but it’s worth a try.
As with any person who is “self-employed” and files schedule SE, the part of the self-employment tax that is attributable to what would be the employer responsibility for a W-2 employee is taken as an above-the-line deduction (I misspoke above and referred to it as a credit), which reduces your AGI and therefore is more beneficial for financial aid purposes.
So yes, the self-employed have a higher tax burden with the requirement to pay the part of the FICA tax what would normally be an employer’s responsibility, but this is offset by the deduction allowed which decreases your taxable income.
And again, it’s likely that you will need to provide a copy of your tax return if you are applying for financial aid at any school that requires Profile, and anything that is not clear with a review of what is reported on Profile will be easily apparent with a glance at your tax return.
Thank you, kelsmom!!!
Thank you, BelknapPoint!!!