A housing allowance is a portion of clergy income that may be excluded from income for federal income tax purposes (W-2 “Box 1” wages) under Section 107 of the Internal Revenue Code. To
be eligible, the pastor/clergy must be a “minister of the gospel” and be ordained, licensed, or commissioned by a church, convention or association of churches.
Tax regulations specify that for the housing allowance to be excluded from federal income taxes it must be designated in advance of payment by official action of the employing body or integral agency. The designation must be in writing and should be contained in the minutes of the board or finance committee, if appropriate. The IRS would not accept housing designations that were self approved. The housing allowance resolution can be adopted or amended at any time.
100 percent of compensation can be designated as housing allowance, but this does not necessarily mean that this is the amount which can be excluded from income taxes. IRS Publication 517 provides a definition of this housing limitation.
If you own your home and you receive as part of your pay a housing or rental allowance, you may exclude from gross income the smallest of the following:
• The amount actually used to provide a home,
• The amount officially designated as a housing allowance, or
• The fair rental value of the home, including furnishings,
utilities, garage, etc.
Clergy Financial Resources’ Housing Allowance Worksheet, is an excellent starting point to designate your 2018 housing / parsonage / manse allowance.
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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