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How do I write a housing allowance letter for tax purpose.

by Thermona
(Georgia)

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 are receiving housing allowance. How do I start this letter and what do I put in the letter.

Answer

It can be as detailed or brief as you want as long as it includes the amount paid throughout the year to the minister. Here is an example of a detailed notification letter:

Date

Dear ________:

Under Section 107 of the Internal Revenue Code, a minister of the gospel is allowed to exclude from gross income (1) the rental value of a home furnished to him or her as part of his or her compensation; or (2) a housing allowance paid to him or her as part of his or her compensation, to the extent used by him or her to rent or provide a home and to the extent such allowance does not exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities.

You should keep an accurate record of your expenditures to rent or provide a home in order to be able to substantiate any amounts excluded from gross income when filing your federal income tax return. In the event of an audit, ministers receiving a housing allowance will have the responsibility of substantiating the use of such funds. Also, remember that the housing allowance (including the fair rental value of a provided parsonage) must be included as part of your earnings for self-employment tax purposes.

Your total housing allowance paid for the 20___ year was $_______

This letter is for your information only and should not be sent to the IRS or attached to your personal tax return.

Sincerely,

Name

Title

Hope this helps,



Church Accounting Package

www.freechurchaccounting.com




Comments for
How do I write a housing allowance letter for tax purpose.

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Dec 27, 2010
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Youth Director
by: Tony

I'm a student at a seminary and a youth pastor for our church. I receive W-2 from the church as an employee. Would I be able to use stipend as a housing allowance if the church allows and reduce the tax burden?
2nd question: My church also withhold FICA for me. Do I do anything for SE. Thank you for your response.

Tony

Dec 27, 2010
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Qualifying for a Housing Allowance
by: Vickey

In order to be classified a minister for tax purposes( and qualify for a designated housing allowance), you must satisfy [all] five separate tests set up by the IRS:


  • 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


However, if your church is withholding FICA taxes, they are not categorizing you as a dual status minister and therefore you would not be eligible for a housing allowance as it is a fringe benefit designated by your employing church.

You are not required to pay self-employment taxes as you are paying your Social Security taxes under the FICA system.


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