Is The Minister’s Housing Allowance Taxable?


You’re a minister and you’re currently receiving the Minister’s Housing Allowance. But you’re getting ready to file taxes and need to know if this Housing Allowance is considered income.

Let’s start with the basics.

What is the Minister’s Housing Allowance?

The Minister’s Housing Allowance is a great tax benefit—and a great financial benefit—for those who are licensed, ordained, or commissioned as a Minister. The amount of the housing allowance must be approved by your Church Board and must be recorded in written form.

Pastors who qualify for the Minister’s Housing Allowance should request a written statement from their church for the fair market rental value of their home (home, furniture, and utilities) or the annual housing expenses required for maintaining a home.

Is The Minister’s Housing Allowance Taxable?

When the approved amount of compensation is determined to be a Housing Allowance, that amount is not taxed by either the federal or state taxing authorities.

In other words, the Minister’s Housing Allowance can be excluded from your gross income when filing your taxes (permitted by Section 107 of the Internal Revenue Code).

This amount is not a deduction from your income—it is an amount of income not reported. A housing allowance is never deducted because it is never reported as income in the first place. However, the pastor is required to include any excess housing allowance as income on their Form 1040.

Pastors can exclude an amount from federal and state income taxes that is the lowest of the following options:

  • A church-designated housing allowance

  • The amount used to provide a home

  • The fair rental value of the residence (home, furnishings, utilities)

The housing allowance payments must be used the same year that they are received.

Note, it does not reduce your Self-Employment Contributions Act (SECA) taxes. When a portion of compensation is received as housing allowance, federal and state taxes are directly reduced, but SECA taxes are not.

Housing Allowance During Retirement

The Housing Allowance comes into play again during retirement. The determined amount of Housing allowance, during retirement, can be used to reduce or eliminate any income tax tied to the distribution from a 403(b)(9) Church Plan. The net result is that your retirement dollars will go up to 25% further because of the Housing Allowance benefit. Please note if you roll your 403(b)(9) funds to an IRA or 401(k) you will lose this benefit.

For more on taxable housing allowance, visit the IRS website.

Envoy Financial does not offer legal or tax advice and encourages that you consult with a lawyer and/or professional tax advisor for personalized tax advice.

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