by Michael Lodge
Tax season brings our firm all kinds of people and professions, one are ministers that work full time with their congregations or ministry. So let’s talk about tax issues in this profession.
Ministers’ Compensation & Housing Allowance
Question: I am a minister and receive a salary plus a housing allowance. Is the housing allowance considered income and where do I report it?
A minister’s housing allowance (sometimes called a parsonage allowance or a rental allowance) is excludable from gross income for income tax purposes but not for self-employment tax purposes.
If you receive as part of your salary (for services as a minister) an amount officially designated as a housing allowance, you can exclude from gross income the lesser of the following amounts:
- the amount actually used to provide or rent a home;
- the fair market rental value of the home (including furnishings, utilities, garage, etc.);
- the amount officially designated (in advance of payment) as a housing allowance; or
- an amount which represents reasonable pay for your services.
The payments must be used in the year received.
Include any amount of the allowance that you cannot exclude with your wages on line 7 of Form 1040, U.S. Individual Income Tax Return.
If your congregation furnishes housing in kind as pay for your services as a minister instead of a housing allowance, you may exclude the value of the housing from income, but you must include the fair market rental value of the housing in net earnings from self-employment for self-employment tax purposes.
For more information on a minister’s housing allowance, refer to Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers.
For information on earnings for clergy and reporting of self-employment tax, refer to Tax Topic 417, Earnings for Clergy.
If you have tax questions please direct them to: firstname.lastname@example.org