The Minister's Housing Allowance is a great tax benefit—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 reflected in their minutes.
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. Note, it does not reduce your Self-Employment Contributions Act (SECA) taxes. You pay no Federal or State tax on the determined amount.
The Minister’s Housing allowance is an exclusion from income 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. However, any excess over the determined amount must be reported as income.
The Housing Allowance comes into play again during retirement. The determined amount of Housing allowance, during retirement, can be used to shelter the distribution from a 403(b)(9) Church plan. The net result is that income was sheltered during your years receiving compensation, and the amount taken out of your retirement plan is sheltered from tax too.
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* Envoy does not offer legal or tax advice and encourages that you consult with a lawyer and/or professional tax advisor for personalized tax advice.