"designating all salary as housing allowance" debate rages on

by David Lunneberg
(Orange, CT, New Haven)

Our small church is lucky enough to own a parsonage. How much would that affect designating funds as housing allowance?

The fair market value is quite high.

Example: Salary $37,500
Fair Market Value $24,000

Would the fact the parsonage is worth so much mean that we shouldn't designate any of the salary amount as housing allowance?

Or is the use of a parsonage a reason to immediately not offer housing allowance?

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Feb 24, 2019
The fair market rental value plus furnishings and utilities
by: Vickey

The federal income tax exclusion is limited to the lesser of:

1) The amount actually spent on eligible housing expenses.
2) The fair market rental value, including furnishings and appurtenances such as a garage, plus furnishings and utilities.
3) The amount officially designated in advance as housing allowance.

So you might could still designate a portion of his compensation as a housing allowance.

it would depend on several factors, such as:

1) does that value include furnishing?

2) does the church pay the utilities?

If the answer to both is yes... it probably would not be beneficial for the minister for the board to designate part of his "Cash" compensation as a housing allowance since he will be limited to the FMV plus furnishing and utilities to claim the HA federal tax exclusion.

However...please aware that unless he has opted out of Social Security...he will pay SE taxes on the value of that parsonage and you will need to report that value for him either in box 14 of their W-2 or in a church letter.

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