What are the IRS reporting requirements?

by Donna Campbell
(Reno, NV, USA)

I've been a treasurer/bookkeeper for a number of very small churches and in several of them I have let the pastor (church voted on it) choose to designate all of his salary toward his housing. It has never been more than $1,000 a month. I have been confused about how to report this. Years ago, the housing allowance was not required to be shown on the W-2 but in the last 10 years or so I have been reporting it in the Other (box 14). But what about the 941...there is no place to put that information and do you still have to do a W-3? Can you just give the pastor a letter from the church of the amount of housing allowance paid for him to use on his tax return?

I'd appreciate further explanation to the reporting requirements. I do agree with your assessment of the housing allowance issue and was glad to hear it because I have been doing it for years. In looking at the IRS rules, I don't know where they are coming up with the "no more than 1/2 of the salary." I just don't see it.

Thank you for your research and sharing with those of us who do not have CPA degrees.

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Jul 04, 2014
Form 941 and Housing Allowance
by: Vickey

On page 3 of the 941 instructions, under "When to File" it states: File your initial Form 941 for the quarter in which you first paid wages that are subject to social security and Medicare taxes or subject to federal income tax withholding.

A church does not pay wages "subject to social security and Medicare taxes or subject to federal income tax withholding" with only a minister employee, so it is not required to file a form 941.

Yes, you can just issue a statement from the church declaring the housing allowance amount paid for the year; however the debate is whether or not a church is required to issue a W-2, if the minister's entire compensation is designated as a housing allowance.

Richard Hammar stated in his Church and Clergy Tax Guide (pg 555 in the 2014 edition) that "IRS Revenue Ruling 2000-6 suggests that a church may not be required to issue a W-2 to a past-time pastor whose entire income is designated as a housing allowance."

But he also stated that "the revised section 6051 of the tax code (read literally) requires churches to issue a W-2 to a minister even though all income is designated as a housing allowance."

His advice is to call the IRS at 866-455-7438 and ask them. BUT I have known many people that got hold of a IRS representative that knew NOTHING about churches and got bad advice...which the IRS has stated they are not liable for...so keep that in mind if you call.

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Join in and write your own page! It's easy to do. How? Simply click here to return to Designating Housing Allowance.

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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