Housing Allowance

No one really knows this answer. We outsource our payroll and the accounting firm has no idea. Our church employs 3 part-time ordained associate pastors. My question is-if they administer the sacraments of the church but only work part-time, would they qualify for housing allowance? If so, what percentage is allowed toward housing?

Answer

In order to be classified a clergy for tax purposes; a minister must satisfy all five separate tests:

Be licensed or ordained
Administer the sacraments of the church (weddings, funerals, baptisms, and communion, etc...)
Be considered a religious leader by the church
Conduct religious worship
Have management responsibilities in the church

The last one might cause a problem with your 3 associate pastors in regards to qualifying for a housing allowance from your church.

Also, according to Dan Busby, in his book Zondervan 2010 Church and Nonprofit Tax and Financial Guide tax court cases and IRS rulings suggest that an individual will qualify for the special tax treatment only if the individual’s services for the employer (Church) substantially involve conducting religious worship or performing sacerdotal functions.

In two IRS letter rulings...the IRS determined that 5% of a minister’s working hours were not sufficient amount of time to qualify for tax treatment as a minister”

I am not sure what you mean by “what percentage is allowed toward housing”.

In general, churches should avoid designating a set percentage of compensation as a housing allowance. A better approach is for the minister to complete a form estimating his anticipated housing expenses each year and set the housing allowance accordingly.

Hope this helps,

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