Taxes on Housing Allowance
by Larry Green
(yelm, thurston, united states)
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 salary of $14,400 has been designated as housing allowance. Should the church be deducting SS and Medicare taxes out of my paycheck?
Answer
No.
Qualifying ministers receive special tax treatment for the following three topics:
- Ministers pay their own self-employment tax.(Even though ministers can be considered church employees, they are treated as self-employed for Social Security and Medicare tax purposes.
- Ministers can receive a Housing Allowance and/or live in a church provided parsonage. (The value of both of these are excluded from a minister's calculation of income tax...but still subject to self-employment tax)
- Churches cannot withhold Social Security and Medicare tax from a minister's paycheck.
Now that does not mean you are exempt from self-employment tax (Social Security) just that the church is exempt from holding it out and matching it.
You may want to consider purchasing this book by a very knowledgeable CPA, Dan Busby:
Zondervan 2010 Church and Nonprofit Tax and Financial Guide. 
He has a whole section devoted to the housing allowance and its regulations.
Hope this helps,
Church Accounting Packagewww.freechurchaccounting.com
