Is Housing Allowance good for ministers who do not opt out of Social Security?

by Sebastian
(Vallejo, CA)

I'm wondering if it's better not to use the housing allowance because I have to pay 12.4 percent social security tax. But if I include it as regular income I may have some credits and deductions to lower my tax liability. Is this correct? Isn't this law only good for ministers who opt out of social security and don't have to pay SEC taxes?

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Dec 11, 2013
Is Housing Allowance good . . . ?
by: Anonymous in NC

The IRC 107 (Housing Allowance for ministers) was intended to be good for the church--to help them keep salaries lower and ultimately to promote the growth of many more churches. It is also good for the qualifying ministers. Moneys excluded from federal and state income taxes must be used for the expenses of having and maintaining the one house of the minister. Financially smart ministers sould never opt out of Social Security--they need to plan for their retirement just like the rest of us. House interest on mortgages and property taxes on minister's houses can also be deducted on Sch. A of the 1040 income tax returns for ministers. So those two expenses are counted (among other things) in coming up with a church housing allowance and counted as deductions on the tax forms for the minister as well (double benefit). Proper use of the housing allowance is therefore a great benefit to qualifying ministers.

Dec 11, 2013
Tax Advantages of Housing Allowance
by: Vickey

Anonymous in NC is correct.

Also, if the church has already approved a housing allowance for a minister, then it must be subtracted from his gross wages and reported either in box 14 on W-2 (recommended) or reported in a letter from the church to the minister.
Either way…only gross wages are reported in box 1 of a W-2...for the year it was approved.

Even though you are required to pay self-employment tax on the housing allowance, you will not be required to pay income tax on the qualifying housing allowance...which is a big tax advantage to most ministers. I believe you are required to report your housing allowance as income on the Earned Income Credit form if that was a concern.

However, if you do not feel a housing allowance is tax advantageous for you...then contact your church board, so they won't include it in next year’s compensation package...but...I would consult a knowledgeable tax professional first before I came to that conclusion if I were you.

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