Housing Allowance or Wages?

by Barb
(NY)

My husband is an ordained pastor of two churches. He does qualify as a minister under the IRS rules.

He is the only person who gets paid at both churches. Both churches have the typical board (secretary, treasurer, etc.) which are unpaid positions. My husband receives a set pay from each church per month.

The pay from both churches doesn't even add up to a living wage and all of our housing expenses can be accounted for with the amount that he brings in. The money that I bring in from my job is used for all the extras over and above housing expenses.

Both boards have designated his pay as a housing allowance. Since I work outside the home, is it okay for my husband's checks to be allotted as 100% housing allowance or is it supposed to be divided up as part salary and part housing allowance? I've done my own research on this, but I am still confused.

Then I have the age-old question: If any portion of the income should be reported as "wages", should it be on a 1099 or a W-2?

Thank you for your time and input.

Answer

Regarding the percentage of a minister’s compensation that can be designated as a housing allowance...I have done my research too and as you have probably noticed...the “opinions” of so called "experts" are varied.

I attended a tax conference a couple of years ago and the presenter, who was a CPA, stated that a housing allowance should not be over 50% of a minister’s compensation package.

When I got home I researched everything I could find on housing allowances and could not find a set rule on percentages. In Bruce Nuffer’s book: The Church Treasurer's Manual: A Practical Guide for Managing Church Finances , he states that the tax code contains no specific percentage or dollar limitation as to how much can be designated as a housing allowance. A reasonable designation may be up to 100 percent of the cash compensation...as long as it does not exceed “reasonable compensation”.

When it comes to actually claiming the exclusion for the housing allowance...it is limited. See this post for the limitations.

Regarding your question on a W-2 or 1099, the only way a minister can be eligible for a housing allowance is if he is an employee of that church. So it would have to be reported on a W-2 .

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