Housing Allowance - Severance Pay

If a church lets a pastor go and agrees to pay him 6 months severance, how is it paid out? Does the "Housing Allowance" still apply or does the entire amount need to be "Salary"? Thank you!

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Comments for Housing Allowance - Severance Pay

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NONE, at the moment. 60 + years as an active member of laity focused on issues of good governance within the church and its institutions.
by: Paul Rexford Thatcher, Sr.

Whilst neither a lawyer nor a CPA, it occurs to me that the parties--to the extent permitted by law--should attempt to best serve the interests of the terminated priest in minimizing the priest's income tax liability. When an agreed dollar amount of severance has been established, agree to its designation as an authorized sabbatical coterminous with the period of payments anticipated. The benefits derived are:
(1) To minimize the record of apparent time "unemployed," for c.v. purposes of the priest; and (2) permit continuing the established allocation between non-taxable housing allowance and taxable employment compensation to the benefit of the priest but w/o economic disadvantage to the parish. A win-win as it has been said.
Seek the benefit of tax counsel before proceeding.

no
by: Anonymous

Our auditor has told us absolutely not! Severance is taxable income...they are not acting as clergy...so no housing allowance.

Then called the IRS and they backed it up. Severance is subject to full tax.

Severance Pay
by: Vickey

I consulted a CPA regarding your question and this was his reply:

"Unless otherwise agreed to between the church and the pastor, the compensation under the severance plan should be exactly like his regular pay - allocate a portion to equal 6 months of Housing Allowance, and the balance to regular salary.

The pay is based on his service as a pastor/minister, so I believe it is still allocated under the existing compensation agreement - even if paid in a lump sum."

Hope this helps.

Thank you, Greg!

No Longer Pastor
by: Marcus in Texas

I am not a CPA, nor am I a tax expert; however, if the person is no longer serving as the pastor of the church paying the severance package, it would seem to me that the entire amount would be considered taxable income....but I could be mistaken and it would not be the first time (that I have been mistaken). Just ask my wife of almost 48 years.........

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