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Setting Up a Housing Allowance

A housing allowance is the greatest tax benefit available to ministers. It is also one of the least understood.

A housing allowance is simply a portion of a minister’s compensation that is so designated in advance by the minister’s employing church.



It is very beneficial for ministers because an allowance for housing is excluded from federal income tax. However, it is not exempt from the minister’s self-employment tax...more on that later.

In order to qualify for the exclusion from federal income tax, two very important conditions must be satisfied:

    housing allowance
  • The housing allowance must be board approved before it was paid (A housing allowance is NEVER retroactive)

  • The minister actually spent the allowance on eligible housing expenses during the year

Your church must make sure the amount they are going to pay as an allowance for housing is determined before it is paid. It should be included in a board approved resolution and properly documented in the church records. Most of the time, it is reviewed and adjusted at the beginning of each new budget year.

Here is an example of housing allowance worksheet your minister can use to figure his housing expenses.

Your church does not have anything to do with the second condition. The minister has the responsibility of tracking actual housing expenses and determining the fair rental value of the housing.



What types of expenses are included in a allowance for housing?

It may be used for any expense relating to renting a home, purchasing a home, and maintaining a home. Some of the eligible expenses are:

  • mortgage payments/rent
  • utilities
  • mortgage interest and insurance
  • home insurance
  • property tax
  • more detailed list
    •

What about taxes on a church provided parsonage?

If a minister lives in a church provide parsonage, the minister is not subject to income taxes on the use of the parsonage.

However, the fair rental value of the parsonage is added when figuring his self-employment tax. (The minister is responsible for determining the fair rental value of the parsonage.)

What if the minister does not spend all of the allowance on housing?

The church does not have any responsibility in making sure that the minister spends all of his allowance on housing expenses.

Instead it is the minister’s responsibility to report any excess funds as taxable income. The church should never know, and has no right to know, what the minister does with his housing allowance.

Can non-minister employees receive an allowance for housing?

No. To receive the special tax treatment of a ministerial housing allowance, the employee must meet the IRS’ 5-test definition of a minister.

How does the church report this tax benefit?

The church is not required to report the minister's allowance for housing to the IRS. However some churches choose to report it in Box 14 of the minister's W-2 (which is labeled “Other”) as a courtesy to the minister.

Or, churches can just include the amount of the allowance in a separate letter to the minister. (This separate letter should not be sent to the IRS and will not be included or attached to the minister's personal tax return.)

Are the allowance payments exempt from all taxes?

No. Housing allowance payments are exempt from federal income taxes, but not from self-employment taxes (Social Security).

A minister who receives such an allowance must report the lesser of the following amounts on a SE schedule on their personal income tax return:

  • The amount actually spent on eligible housing expenses.

  • The fair market rental value plus furnishings and utilities.

  • The amount officially designated in advance as housing allowance.

Are the allowance for housing payments exempt from state taxes also?

Generally, housing allowance payments are exempt from most state's income tax.

However, I received a comment from Mark in PA that said it was not exempt from taxes in his state...so be sure and check you state's income tax requirements. Thanks Mark!

housing allowance regulations Want to learn more about seting up and administering this type of minister's allowance? See my ebook: Housing Allowance: It’s Been in Existence for Over 50 Years, So Why Do We Know So Little About It?

The ebook along with a spreadsheet to help track and record housing expenses are bonuses with my Church Contribution Package and Church Accounting Package.



Comment Section

Personal Note: I have closed the question and answer portion of my site. With my husband’s illness, my “regular” 40hr a week job, building and maintaining three web sites, and my volunteer work at my church, I am overwhelmed. I had to let something go. My God comes first, my husband and children come second, and with my husband being on my insurance at work...it comes third. So that leaves my web sites and the question and answers take a very big portion of my time. So it had to be the first to go.

however, you can look at the submissions below and see if someone has already answered your particular question or maybe you would like to take a minute to comment on one of the questions and comments below. Your opinions and comments are very valuable to me...so thank you in advance for contributing your comments.

You can also use this search button to look for the answers to your particular question:

Custom Search

Also please read the disclaimer at located at the bottom of these comments and realize the comments below are for general information purposes only and do not constitute legal or other professional advice on any subject matter. Please contact a tax professional to discuss your particular situation before relying on any information given on this site.

Archive of Housing Allowance Questions (& Answers)

Click below to see contributions from other church administrators to this page...

(Click on the read or post comment on the bottom of the question to see the answers and/or add your own comments or answers!)

Eligiblility for Housing Allowance  starstarstarstarstar
My dad is a retired Wesleyan minister. He pastored in a number of churches over the years, but it was not his primary source of employment over his working ...

W-2 vs 1099  starstarstarstarstar
I was recently elected to the council of a small church that annually contracts with a retired ordained minister to serve as our pastor. He is 74 and collects ...

Do you include a housing allowance when calculating for Earned Income Credit?  starstarstarstarstar
Bottom line...Does an ordained minister have to include his housing allowance when calculating for Earned Income Credit?

It seems that even the IRS ...

Housing Allowance  starstarstarstarstar
We have a small non-profit incorporated church/ministry & I am a licenced & ordained minister.

Our board designated a housing allowance years ago ...

tax information for a parsonage  starstarstarstarstar
It is my first year as our church's treasurer and completing tax forms. On past w-2 forms for our pastor listed an amount in block 14 as a housing allowance....

Record keeping requirement for the church on minister housing allowance  starstarstarstarstar
What details are required for the church to keep as ministers' housing allowances?

What are the required details or evidence that the church needs to ...

Bivocational Minister's income exceeds Social Security Maximum Amount  starstarstarstarstar
Is a Minister, whose secular income exceeds the Social Security Maximum amount required to pay Social Security Tax and thus at some point he stops paying ...

Do i include the amount that the church pays on rent as goss income or salary?  starstarstarstarstar
Ok, the Church has agreed to pay me $44,000 salary per year. But they are going to actually write the checks for the rent which will total $8,400.00.

So ...

Taxes for Housing Allowance  starstarstarstarstar
I want to make sure I am understanding this correctly. Our pastor is going to get $1000/month in housing allowance. With his approval on the w-4, we can ...

Filing Married for the first time and calculating housing expenses  starstarstarstarstar
My husband and I were just married in May. When I calculate housing expenses for the year if we are filing jointly, can I add both of our housing expenses ...

Housing Allowance Eligibility  starstarstarstarstar
My uncle has a house church which is a official religious organization. Are housing allowances only for churches with a payroll? We are trying to be able ...

It may not be benifical for me to have a housing allowance  starstarstarstarstar
I am using turbo tax to prepare my taxes. I plugged in my income. Approximately 27,000 and my housing which is approx. 18,000. My tax due was around ...

How is Housing Allowance Reported on Form 941?  starstarstarstarstar
How and on what line is housing allowance reported on Form 941? Also is this amount reported on Line 2 on Form 941?

[Know the answer? Face the same ...

Refinance expenses count toward housing allowance?  starstarstarstarstar
How do I determine from re-fi settlement statement the amount to count toward my "actual expenses" with regard to my housing allowance?

vickey's reply...

Can Entire Salary be Tagged as Housing Allowance?  starstarstarstarstar
Have a part time minister that receives a monthly stipend - can he allocated the entire dollars received as housing allowance?

(Please use the "comment"...

Need to File a 941 If Only Paying a Housing Allowance?  starstarstarstarstar
Our small church only has one employee and his total compensation is designated for "housing allowance". Does the church need to file a Form 941 to report ...

drawing my social secutity  starstarstarstarstar
when i sign up for social security does my parsonage allowance count toward my income

Answer

Anything you pay self-employment tax on such as your ...

How do I write a housing allowance letter for tax purpose.  starstarstarstarstar
I am the bookkeeper for our church. I need to write a letter stI am the bookkeeper for our church. I need to write a letter stating that our ministers ...

HOUSING ALLOWANCE FORM  starstarstarstarstar
I pastor a very small church that pays me a small salary, but they cannot pay for my Housing Allowance.I have paid for my own Home. My former taxpreparer ...

housing allowance if unemployed  Not rated yet
I was serving on staff at a church until the end of August 2010. Then by September 2010 I was unemployed and with out any income until January of 2011....

Housing Allowance less than house rent  Not rated yet
I am a pastor and the board of the church of which I am also an incorporator and president agreed to give me a housing allowance. All the amounts I receive ...

Housing Allowance on W-2  Not rated yet
Our pastor has a salary of $42000. $1200 is set as Housing Allowance. The $1200 goes into Box 14? Does $42000 go in box 1 or would it be $30,000.

[Vickey'...

Church pays rent for parsonage  Not rated yet
Our church pays rent to a church member for us. The money is not given directly to us. Is this amount added into box 1 on the W-2?

Housing Equity Allowance  Not rated yet
I have seen this term referred to as part of a compensation package for pastors who live in a church provided parsonage, but I have yet to see any information ...

Is the housing allowance pro-rated for part-time pastors?  Not rated yet
Do half-time pastors receive the full fair rental value for their housing allowance or must it be pro-rated? For example, if the half-time pastor states ...

Housing Allowance  Not rated yet
Can the church offer Housing Allowance in leiu of a salary or payment?

[Know the answer? Face the same situation? Please post your answer or comment ...

Do I pay a SE tax on the total amt rec'd?  Not rated yet
The SE tax that we will be required to pay, will that be like 15% of the total amount rec'd for housing regardless of the monies spent on housing?

[vickey'...

Is my housing allowance exempt from the SE tax, in MY situation  Not rated yet
I currently serve as a part-time pastor of a Baptist church, and it has given me part of my salary as a housing allowance deduction (only from FICA wages,...

Renting out personal dwelling property and housing allowance filing?  Not rated yet
I have the housing allowance, but I also rent out rooms from my house. How should I file?

Answer

I am not sure. I believe you would just report ...

Adjustment to Housing Allowance  Not rated yet
I just started a new ministry in Keller TX. My original housing allowance statement approved by the church board was underestimated due to unexpected ...

Ammending a Housing Allowance?  Not rated yet
If I was approved a housing allowance for our fiscal year (July 2010 - June 2011) and now see that I will have additional housing costs in 2011 can we ...

Part time pastor & housing allowance  Not rated yet
My husband will be working 15 hours per week (ordained minister). Can he use all of his pay toward housing allowance (his monthly pay will be less than ...

Is Housing Allowance a Payment or a Credit?  Not rated yet
Is a housing allowance something actually paid by the church to the minister and then credited to your taxes, or is it simply an amount you get to take ...

Do I include Housing Allowance in Hourly Rate Calculation of Unpaid PTO Hours  Not rated yet
Our pastor is leaving. He has unpaid PTO days. The compensation package comprises two elements: a salary amount and a housing allowance amount.

When ...

Housing Allowance for a pastor  Not rated yet
Can a pastor who has already paid off his mortgage receive HA to cover his utilities and maintenance upkeep?

Answer

Yes. I would have him fill ...

Splitting the Compensation package between housing and salary  Not rated yet
Our church is relatively small and therefore can't pay our pastors properly. Lower than the 25% range for pastors in our area.

It was determined our ...

Housing Allowance for Nonpaid Ministers  Not rated yet
Is a housing allowance available to non paid ministers?

vickey's reply

That would depend on several factors

If it is set up properly and you ...

Housing allowance while living over seas temporarily  Not rated yet
Hello,
I am licensed and ordained and received housing allowance for the past 6 years. in 2009, my family moved to Chile for the months Sept. to Dec....

can a minister receive just a housing allowance  Not rated yet
Can a ministier receive just a housing allowance

Answer

See this article and the comments posted on the bottom

Vickey

[Know the answer?...

Statement Providing Details About Ministerial Income  Not rated yet
I am preparing my taxes with H&R Block tax software. I am ready to file and I am instructed to write a statement about ministerial income, housing allowance,...

Can you deduct Parsonage Related Expenses  Not rated yet
I live in a church parsonage, but do not receive an allowance for utilities/expenses. I report the fair market rental value on form SE. Can I deduct the ...

Statement Describing Housing Allowance  Not rated yet
IRS Publication 517 says to include a statement describing my housing allowance and nondeductible expenses. Is this an actual form? Are there any good ...

Social Security tax on Housing Allowance  Not rated yet
Does the church pay 1/2 of the social security tax and the mnister pay 1/2 on housing allowance or does the minister have to pay the entire amount?

Answer...

Housing Allowance and Schedule A Double Dip  Not rated yet
If mortgage interest and real estate taxes are deducted on Schedule A, is it also ok to include those same amounts in the housing allowance that is excluded ...

Retro Self-Employment Tax  Not rated yet
I'm trying to help a priest that speaks mostly Spanish (and I speak mostly English). He is paid as exempt from SS tax (via a W-2) and wants to voluntarily ...

Where does our pastor report that he lives in a house where the rent and all utilities are paid by the church.  Not rated yet
Our pastor does not receive a salary. He does live in a house that that the church pays the rent and all utilities on. The rental contract is signed by ...

Does the HA have to be a direct expense of the church?  Not rated yet
I have read where the HA does not have to be an actual expense for the church. Like, if it is a small church that is unable to compensate with a salary,...

Housing allowance reported in W-2 box 14 but not actually received  Not rated yet
I have received from my church W-2 form that includes HA in box 14 as others. But the total amount in box 14 was not received. For example, church designated ...

Is the housing allowance taxable income for state taxes?  Not rated yet
Is the housing allowance taxable income for state tax purposes? thank you!

Answer

Generally, housing allowance payments are exempt from most state'...

Box 14 Housing Allowance  Not rated yet
Thank you so much for being there for many small church office secretaries and support staff. This is our situation. We had an assoc. pastor leave part ...

What should theHousing Allowance letter say?  Not rated yet
What should the letter on clergy housing say?

Answer

Are you talking about the letter you give your minister to inform him how much his housing ...

How Do I Report a Housing Allowance if No Income is Received  Not rated yet
A clergy member who does not receive income just has the housing allowance needs to report additional expenses as well as depreciation for the church van ...

Do I write 2 separate checks one for the housing allowance and one for the pastor's salary?  Not rated yet
We are writing 2 separate checks to our pastor. One is a payroll check for his salary and the other is out of our payables for the housing allowance. On ...

What to Report on Schedule SE  Not rated yet
I receive about 80% of my income as housing allowance, which isn't taxed by my church. The other 20% is taxed. Do I just report my housing allowance ...

W-2 and H/A  Not rated yet
How can correction be made to the W-2 once the treasure has sent them in?

The Total in box 1 was inclusive with the H/A and also listed H/A in bx ...

Should total wages reported on w-2 box 1 include housing allowance?  Not rated yet
In box 1 of my w-2 the church reported my total wages to include my housing allowance. I am a full time pastor. I thought box one should only report wages ...

Housing Allowance  Not rated yet
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....

Part Time Clergy and a Housing Allowance  Not rated yet
Are part time Clergy eligible for housing allowance?

Answer

I am not sure what you mean by part-time. If you are a pastor of a church, you would ...

Taxes on Housing Allowance   Not rated yet
I serve as a certified minister at my local church. My church has been taking our Social Security and Medicare taxes out of my paycheck.

My entire ...

Housing Allowance and Parsonage  Not rated yet
Housing Allowance and Parsonage, Are they the same?

Answer

No. A parsonage is simply a place where the minster and his family live. It is owned ...

HA Paid to an Hourly Paid Clergy  Not rated yet
Question regarding housing allowance paid to a part-time pastor:

We have a part time pastor that works on an hourly basis. At the beginning of 2009 ...

Housing Allowance Expenditures  Not rated yet
Question regarding housing allowance expenditures:

Where on form 1040 do we report expenditures for the "housing allowance" category?

Answer

You ...

Reporting Housing Allowance on a W-2  Not rated yet
I am receiving conflicting information regarding reporting a housing allowance on a W-2--how much of our pastor's housing allowance must be reported on ...



The comments above are for general information purposes only and do not constitute legal or other professional advice on any subject matter. See full disclaimer.

Additional Resources

Learn more about a clergy housing allowance from a pastor's perspective. I really like this site. Take the time to explore it when you get a chance. It is all about appreciating your pastor.

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