Setting Up a Housing Allowance for Ministers.

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’scompensation that is so designated in advance by the minister’s employing church.

It is very beneficial for ministers because the HA 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 of the HA from federal income tax, two very important conditions must be satisfied:

Your church must make sure the HA amount 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.

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.

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:

If 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.

The church does not have any responsibility in making sure that the minister spends all of his HA 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.

The church is not required to report the minister's HA 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 HA 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.)

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

A minister who receives a housing allowance must report the total amount of HA payments on a SE schedule on their personal income tax return.

Generally, HA 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!

The housing allowance has been in the IRS tax code for over 50 years, but it still confuses a lot of ministers and church administrators. So let's discuss it in detail.

Take a moment to submit your question or comment regarding this tax benefit in the tax code. It is quick and easy. There is no registration or login.

Also, please look at the submissions below this form 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.

We are all facing a lot of the same issues and need each other..so help and be helped here:

Questions and Comments on a Housing Allowance

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!)

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

(Reply)

Vickey wanted me to post this and let you know that her husband is in the hospital - please ...

What Percentage of Budget is Average for Salaries Not rated yet
What is the average % of salaries in a church budget?

Answer

It kind of depends...

Dan Busby, CPA, states that employees of churches may receive ...

Reporting a Housing Allowance Not rated yet
I receive all my salary in HA. I do not get a W2. How do I report that to the IRS?

Answer

You will report it on a Schedule SE.

Zondervan ...

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 ...

How do I write a housing allowance letter for tax purpose. Not rated yet
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 for youth/music minister Not rated yet
Do you have to report Housing allowance for a youth/music minister that you do a misc 1099 on?

I have just recently taken over this job and the prior ...

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 ...

Housing Allowance Not rated yet
I am a Reverend in my church, but not the Pastor.

I meet four of the five separate tests (I only minister occasionally) I do not have any management ...

Housing Allowance or Wages? Not rated yet
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 ...

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 ...

Clergy's Housing Allowance on 1099-misc Not rated yet
I have a SELF-EMPLOYED minister for whom I am completing a 1099-misc. Where do I enter the amount for his housing allowance? And where do I enter the amount ...

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 ...

Setting Up a Housing Allowance for Your Minister

Questions and Comments on a Housing Allowance

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