When a parsonage is provided, the congregation should pay for utilities and maintenance. (For tax purposes it is usually to the pastor’s advantage if items like utilities, maintenance, etc. be paid for directly by the congregation rather than to the pastor and then the pastor paying these expenses.)
Parsonage Fair Rental Value
In addition to any cash paid to the pastor, the fair rental value of a parsonage must be included by the pastor when figuring the amount of social security (self-employment) tax. The fair rental value is what the congregation would be willing to rent the dwelling in which the pastor lives to anyone else other than the pastor. There are many ways in which this may be determined, however, the method most commonly used is to approximate it at 30% of the pastor’s base compensation. (i.e.: Multiply the base compensation by 1.3.)
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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