A housing allowance paid to you as part of your salary is not income to the extent you use it, in the year received, to maintain and furnish a home. The amount of the housing allowance that you can exclude from your income cannot be more than the reasonable compensation for your services as a minister. The church or organization that employs you must officially designate the payment as a housing allowance before the payment is made. A definite amount must be designated; the amount of the housing allowance cannot be determined at a later date. If no part has been officially designated, you must include your total salary in your income. Expenses of providing a home include rent, house payments, furniture payments, costs for a garage, and utilities, but not limited to. They do not include the cost of food, personal items, personal gifts or maid service, are eligible under IRC 107. This housing exclusion is only available for federal tax purposes. The amount of housing allowance exclusion(for Federal income tax) does need to be included as income in the clergy’s SECA (SE tax) calculation. This is one of the greatest benefits available to clergy today. A housing allowance paid is not included in gross income to the extent it is used to furnish and maintain a home in the year received. Unfortunately, many churches fail to designate a portion of their minister’s compensation as housing or parsonage/manse allowance, and thereby deprive him/her of a very important tax benefit. Although a housing allowance may be used to purchase a home, it may not be used to shelter’s a minister’s entire salary from tax. The IRS has ruled that the housing allowance exclusion is limited to an amount equal to the fair rental value of a home, including furnishings and appurtenances such as a garage, plus the cost of utilities. To the extent that a greater amount is designated as a housing allowance, the designation will be ineffectual, even if the excess amount is actually spent on a down payment for the purchase of a home. A minister who owns his own home and does not incur any costs for rent, mortgage, insurance, property taxes, etc., is not entitled to exclude the amount of his housing allowance. If you own your home and you receive a housing allowance as part of your pay, the exclusion cannot be more than the smaller of the following: -The amount actually used to provide a home, -The amount officially designated (in advance of payment) as a rental or housing allowance, -The fair market rental value of the home, including furnishings, utilities, garage, etc., or -An amount which represents reasonable pay for your services as a minister. Source: Clergy Financial Resources https://www.clergyfinancial.com Clergy Financial Resources is a national accounting and finance organization serving churches and clergy since 1980. They have an unparalleled tax expertise on the complex issues associated with clergy tax law, clergy taxes, clergy compensation and church payroll. Clergy Financial Resources is a valuable resource for clergy, churches and denominations.< Back
Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
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