Is housing allowance paid to the pastor included in the 1099 he receives. He does not get a salary for a w-2.

First of all, thank you for maintaining this site, it is very very helpful in many aspects! Thanks!

So lets discuss an example. I have a minister whose compensation/salary is $50,000. In his contract we determined, that $12,000 will be setup for housing allowance. When we issue him a 1099-Misc, should we put $50,000 in box 7 or $38,000?

Thanks.

(Vickey's Reply)

$38,000

A housing allowance is not reported ANYWHERE on a 1099.

The church can issue a letter to the minister to report how much was paid for a housing allowance for the year.

Thank you for the encouragement!

I respectfully disagree.

Box 7 of a 1099-MISC is used to report taxable non-employee compensation.

Under Section 107 of the Internal Revenue Code, qualifying ministers can exclude some or all of their ministerial income designated by their church as a housing allowance from their income tax computation.

The church can report the amount designated and paid to a qualifying minister as a housing allowance in Box 14 (Box 14 is an information box that the IRS does not take amounts from) on the "employee's" W-2 or they can report it directly to the minister through an official church document.

It is then between the minister and the IRS to report the smallest of the following 3 amounts:

• The amount actually spent on eligible housing expenses.
  
• The fair market rental value plus furnishings and utilities.
  
• The amount officially designated in advance as housing allowance

on a Schedule SE in their personal income tax return and pay the self-employment tax ... unless a minister has filed a Form 4361 and been approved to opt out of social security.

The church does not have any responsibility in making sure that the minister spends all of his housing allowance on housing expenses.

Instead it is the minister’s responsibility to report any excess funds received as a housing allowance over the qualifying amount as stated above ... as taxable income.

All compensation for which the payee does not account directly to the church must be included in box 7 of 1099-MISC. This includes housing and car allowances etc. The only compensation which does not need to be reported on 1099-MISC is reimbursement for expenses for which the payee accounts directly to the church, e.g. expenses for which the payee provides receipts for reimbursement. Since the church does not know the pastors actual expenses for housing they have no way of knowing how much of the housing allowance can be excluded from income, so all must be reported. The minister is then responsible for determining how much to exclude when he files his return.

There is no place on the 1099 to record a housing allowance.

If you send him a 1099, don't put the housing allowance on it. Send your pastor a statement on your church's letterhead telling him how much he received and for what year.

I also recommend you consult a tax professional about how to handle the love offerings and housing allowance.