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


Vickey's reply

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

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

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Dec 27, 2010
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
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.


Feb 06, 2013
Social Security, SE Tax, Housing Allowance
by: Belinda

I HAVE BEEN THE OFFICE ADMIN FOR A COUPLE OF YEARS. I STARTED WITH JUST TAKING RECORD OF TITHES AND OFFERING. PASTOR HAD SOMEONE DOING THEIR 941'S AND ISSUED THEIR W2'S. I JUST CONTINUED WHAT THAT ACCOUNTANT HAD BEEN DOING. OVER THE YEARS I HAVE TRIED TO LEARN A LITTLE MORE ABOUT CLERGY BENEFITS. NOW I FEEL WE ARE COMPLETELY WRONG ON HOW THE PROCESS SHOULD BE.

1ST THE CHURCH PAYS THE SOCIAL SECURITY AND MEDICARE THROUGH THE 941 FROM THE SALARY AMOUNT ONLY.

2ND THE HOUSING ALLOWANCE HAS NEVER BEEN INCLUDED ON THE W2 OR 941 OR ANYTHING.

NOT SURE IF HE FILES SELF EMPLOYMENT TAX AND IF SO HOUSING ALLOWANCE HAS NOT BEEN SUPPLIED TO HIM. HE HAS NEVER GOTTEN INCOME TAX WITHHELD.

I HOPE YOU CAN POINT ME TO THE RIGHT DIRECTION BECAUSE WE DO WANT TO LINE UP TO WHAT IS CORRECT.

3RD I JUST STARTED AS AN EMPLOYEE OF THE CHURCH AS A PART TIME EMPLOYEE RECEIVING AN HOURLY PAY. DO I SEND IN A W4? OR CAN I GET A 1099 MISC AT THE END OF THE YEAR AND JUST GET FIT TAKEN OUT? IS THERE A CERTAIN AMOUNT OF PEOPLE THAT SHOULD BE ON THE BOARD OR IS THAT SOMETHING THAT THE PASTORS CAN DECIDE? I WAIT EAGERLY FOR YOUR RESPONSE...I REALLY LOVE THIS WEBSITE. GOD BLESS!!

Feb 06, 2013
For Belinda
by: Vickey

You sound a little overwhelmed:-)

Know that feeling:-(

Since my husband died and even while he was battling cancer...I have some readers that have really stepped up and become a wonderful blessing for me and everyone who reads this site...by sharing their knowledge and answering many of the questions posted on this site.

When someone writes a new post...it is automatically included in the Accounting Blog and the RSS reader and those following the blog will respond pretty quick...but if someone posts their questions as a comment on another reader's post...it is usually never seen and goes unanswered;-(

So would you mind reposting you question on a new post? If no one answers I will try to answer all of your questions myself;-)

Also...to make it easier to read...could you leave spaces between your questions and type in smaller letters? My vision is not what it used to be and I have a hard time reading when it is all in caps:-(

Thank you for the very sweet comment about my site. I very much appreciate it and it means a lot to me. God Bless you too!

Feb 07, 2013
Thank you Vicky
by: Belinda

Thank you and I am so sorry....I really have no idea how to or where to go to place a new post but let me see what I can do. I appreciate the info.

Blessings!!
Belinda

Feb 08, 2013
How to Post a Comment or Question
by: Vickey

Dear Belinda,
I am so sorry. I forgot to include how to post a comment or question. It's not just my vision that getting bad...my mind seems to be following...:-)

Click on the button on the left that says "Housing Allowance"

Scroll down to the Q & A Section.

In that text box where it says: Enter Your Main Question or Thought for the Title..you can type your title "Social Security, SE Tax, Housing Allowance".

Then click on that link right below the text box that says: Click here to see the rest of the form and complete your submission.

Type in your questions or comments.

Add any pictures and information about you that you want to appear in post.

Read the submission guidelines and click the little box if you agree.

Then just click "Submit Your Contribution"

There will be a place for you to indicate if you want to be notified if someone comments on your post.

That's it...I think:-)





Jan 09, 2017
Secretary
by: Anonymous

I need to write a letter for housing compensation for tax purposes for our Interim Music Director. What should it say?

Thanks

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