Housing Allowance

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. My question is-if they administer the sacraments of the church but only work part-time, would they qualify for housing allowance? If so, what percentage is allowed toward housing?




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Jul 16, 2014
Qualifying for Ministerial Treatment
by: Vickey

In order to be classified a clergy for tax purposes, a minister should satisfy five separate tests:

  • 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


A Pastor is almost always considered a clergy for tax purposes.

Note: In a Supreme Court case decided in January of 2012, “Justice Clarence Thomas offered a concurring opinion broadening the ministerial exception and stating the Church should be free to select its ministers entirely free of government regulation. The state, he wrote, should “defer to a religious organization’s good-faith understanding of who qualifies as a minister.” taken from an article titled: Supreme Court unanimously shoots down Obama admin in religious freedom case found here: http://www.lifesitenews.com/news/supreme-court-unanimously-shoots-down-obama-admin-churches-have-right-to-ch

So they probably qualify for ministerial treatment such as NOT withholding FICA and setting up a housing allowance.

In general, churches should avoid designating a set percentage of compensation as a housing allowance. A better approach is for the minister to complete a form estimating his anticipated housing expenses each year and set the housing allowance accordingly...which can be up to 100% of ministerial income. See this article: Is Designating All Salary as Housing Allowance Permissible?...found here: https://www.freechurchaccounting.com/designating-all-salary-as-housing-allowance.html

Jul 16, 2014
Qualifying for Ministerial Treatment
by: Vickey

In order to be classified a clergy for tax purposes, a minister should satisfy five separate tests:

  • 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


A Pastor is almost always considered a clergy for tax purposes.

Note: In a Supreme Court case decided in January of 2012, “Justice Clarence Thomas offered a concurring opinion broadening the ministerial exception and stating the Church should be free to select its ministers entirely free of government regulation. The state, he wrote, should “defer to a religious organization’s good-faith understanding of who qualifies as a minister.” taken from an article titled: Supreme Court unanimously shoots down Obama admin in religious freedom case found here: http://www.lifesitenews.com/news/supreme-court-unanimously-shoots-down-obama-admin-churches-have-right-to-ch

So they probably qualify for ministerial treatment such as NOT withholding FICA and setting up a housing allowance.

In general, churches should avoid designating a set percentage of compensation as a housing allowance. A better approach is for the minister to complete a form estimating his anticipated housing expenses each year and set the housing allowance accordingly...which can be up to 100% of ministerial income. See this article: Is Designating All Salary as Housing Allowance Permissible?...found here: https://www.freechurchaccounting.com/designating-all-salary-as-housing-allowance.html

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If you want to DIY your payroll, I highly recommend you look at using Gusto! It is very user friendly and their support is awesome! Plus they know how to set up and maintain payrolls for churches and nonprofit organizations.

Note: I am a "partner" of Gusto, but as I have told you before ... I never recommend anything that we or our clients have not tried and love =)



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