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