CLERGY HOUSING ALLOWANCE

In addition to a salary, ministers are also often compensated with a housing or parsonage allowance. To be entitled to this benefit, the minister must either be licensed or ordained.  The housing allowance is excluded from gross income tax but is subject to self-employment tax.

To determine the allowable housing allowance, certain items are needed including the amount designated and paid by the church, the fair rental value of the home including furnishings, and a list of amounts used and paid for qualified housing expenses.

Common qualified housing allowance expenditures include the following:

1.     Rent or home purchase costs such as down payment and mortgage principal payments

2.     Interest payments for home mortgage and financed furniture and appliances

3.     Home-owner’s insurance premium

4.     Real estate property taxes

5.     Fixtures, appliances and furnishings

6.     Repairs, maintenance, improvements, landscaping, and upkeep of home and contents

7.     Cleaning supplies, yard and gardening tools

8.     Utilities including electric, gas, water, sewer, phone, cable

Disallowed expenditures for the housing allowance include:

1.     Second home expenditures

2.     Cell phones

3.     Groceries

4.     Paper products

5.     Home equity loan not used to provide a home

6.     Housekeeper, maid, chauffeur, gardener or servant

The excludable housing allowance eligible to be free of income tax is limited to the lesser of:

1.     Official advance designated allowance amount

2.     Fair rental value of the unfurnished home plus utilities

3.     Actual amount of allowable housing expenses to provide a home

When fair rental value or actual costs are less than the designated allowance, the excess is subject to federal income tax and must be reported as unused excess housing allowance on the minister’s tax return.