The Minister’s Housing Allowance—sometimes called a parsonage allowance or rental allowance—is excludable from gross income for federal and state income tax purposes, but not for self-employment tax purposes. When a portion of compensation is received as housing allowance, federal and state taxes are directly reduced. Self-Employment Contributions Act (SECA) taxes are not directly reduced.
Who Can Receive the Minister’s Housing Allowance?
In order to receive the Minister's Housing Allowance, you must be an ordained, licensed, or commissioned minister.
The housing allowance is an exclusion from income permitted by Section 107 of the Internal Revenue Code. It is not a deduction. In other words, a housing allowance is money that is not reported as income. A housing allowance is never deducted because it is never reported as income in the first place. However, the minister is required to include any excess housing allowance as income on their Form 1040.
Whether the minister owns or rents a home, it is essential that his or her employing organization designate a housing allowance. Housing allowances must be:
Adopted by the organization board or leadership
Recorded in written form (such as minutes)
Designated in advance of the calendar year
However, organizations that fail to designate an allowance in advance of a calendar year should do so as soon as possible in the new year. The allowance will operate prospectively.
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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.