Tax Reporting and the Housing Allowance

Although the IRS instructions for Form W-2 do not require that the “fair rental value” of the parsonage be reported on the W-2, the Board joins the IRS (Instructions to Form W-2) in recommending that Box 14 be used to record this amount. Putting the “parsonage fair rental value” or “ministerial housing allowance” on the W-2 is a great way of maintaining a record of the amount designated as such.

If the pastor is living in a parsonage, the amount that is reported is the fair rental value of the house, plus any utilities and furnishings that are provided by the church. To get the fair rental value, it is suggested that you ask a local realtor to provide the church with a written estimate of how much a house similar to the parsonage in size and location would rent for on the open market. The church treasurer should then take that amount and add to it a “fair rental amount” for any furnishings that the church provides, plus utility costs if the church also provides utilities. This total amount would be reported on the W-2 in Box 14 as, for example, “12000.00 – Ministerial Parsonage Allowance.” If the minister received a housing allowance, Box 14 would report, for example, “12000.00 – Minister’s Housing Allowance.”

It should always be remembered that while the pastor does not have to pay federal income tax on this amount, he is required to pay SECA taxes (Medicare and Social Security taxes) on the housing amount. Further, it should be noted that only licensed or credentialed ministers are entitled to a parsonage allowance or a housing allowance. If a non-minister is given either a housing allowance or allowed to live in the parsonage, the entire value becomes taxable to the non-minister for both federal income tax purposes, as well as Medicare/Social Security tax purposes.

About benefitsboard

Art Rhodes is the President and CEO of the Church of God Benefits Board, Inc. - the administrator of the Ministers' Retirement Plan and the Church Loan Fund, Inc. The corporate offices of the Benefits Board are in Cleveland, TN.
This entry was posted in 01 - January 2014, Form W-2, Ministerial Housing Allowance. Bookmark the permalink.

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