The Housing Allowance is a great tax benefit available to Clergy, but it is not widely understood. Here are some common misconceptions about the Clergy Housing Allowance.
1. If I don’t spend all of the housing allowance, I will have to pay a penalty.
False. The Housing Allowance is just the portion of your wages that you could get to exclude from federal income tax. If you don’t spent it all, that just means the rest gets included in your taxable income. No additional penalty.
2. I can only designate a certain percentage of my income, or only change my designation at specific times of the year.
False. These are often internal church regulations and not actually IRS rules. IRS just states that the designation should be approved in writing, preferably in meeting minutes, the budget or a church memo.
3. I can change my Allowance at the end of the year to match my spending.
False. IRS is very specific about this- housing can only be designated for the future, never retroactively. If you forget to designate a housing allowance until December, that means you don’t get to claim a housing allowance for January through November!
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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