Tax Reporting for 403(b) Plan Distributions
Beginning with the 2017 tax year, the Tax Compliance Department of Northern Trust, our issuing bank, is no longer permitting a parsonage amount to be reported on Form 1099-R for gross distributions made during the year. Instead, “Taxable amount not determined” will be checked in Box 2b of your Form 1099-R.
This change to Form 1099-R reporting has no adverse impact on you from a tax perspective.
You can still claim a parsonage exclusion on your tax return based on the lesser amount of:
- your declared parsonage amount with RPB,
- your actual allowable housing expenses, or
- the fair market rental value of a comparable furnished home in your neighborhood.
You and your tax accountant are responsible for the calculation and substantiation of the parsonage amount on your tax return.
What You Need to Know
RPB facilitates parsonage declarations in retirement for clergy. Distributions from the Reform Pension Plan are considered as taxable income. When retirees draw on their pension accounts in retirement, they are receiving distributions of pre-tax contributions and associated earnings. Clergy can use their parsonage exemption to offset some or all of the taxable income on their distributions depending on their housing expenses. Retired clergy should check with a financial advisor to ensure compliance with the IRS parsonage rules. For specific information on retired ministers’ parsonage benefits from the IRS website, click here: Retired Ministers.
RPB sends parsonage exemption forms to retired clergy each fall in advance of the upcoming year. The participant must confirm or lower the amount of parsonage that they declared for the past year and project the amount of parsonage that they wish to set for the upcoming year. RPB transmits the collected information to the applicable financial institution, who then issues a Form 1099-R to the participant to reclassify the income from taxable to non-taxable. It is important to note that retired clergy are eligible to use a parsonage exemption and do not have to be associated with a congregation in retirement or need to have a title such as Rabbi Emeritus to utilize their parsonage exemption.
For additional information on parsonage, including information from the “Minister’s Guide for Income Tax,” please contact the Central Conference of American Rabbis (CCAR) at firstname.lastname@example.org.