Creating a Valid Ministerial Housing Allowance

The following simple steps should be taken to assure that the ministers’ housing allowance is created properly:

  • The minister should determine his yearly housing costs by using the Estimate of Housing Allowance form (may be obtained at www.benefitsboard.com).
  • The Estimate should be submitted to, and adopted, by the governing body of the local church (either Church Council or full church business meeting) prior to the beginning of the new year for which estimate is based on. However, it can be done after the start of the year but only may be applied prospectively, not retroactive. As an example, the resolution should state that “the Anytown Church of God, through this action of the Church Council, does hereby create a housing allowance for Pastor Phil Pulpit. The church agrees to pay to Pastor Pulpit $1,000 each and every month to secure and maintain a residence. This resolution shall be good and valid for the upcoming fiscal year and all years afterward unless changed by this body.”
  • The minister should keep careful records of all housing costs for the year.
  • The minister should remember that he can receive a housing allowance for only onehome.
  • The minister’s housing allowance is limited to the least of the (1) amount designated by the church as housing allowance, (2) the amount actually used to provide a home, or (3) the fair rental value of the home, including furnishings and utilities.
  • The minister must pay federal income taxes on any “excess housing allowance,” which is reported on line 7 of the minister’s IRS Form 1040.
  • The minister must pay self-employment tax (Social Security) on the entirety of the housing allowance.
  • A housing allowance provision has to be adopted by the church before the minister can claim such. As noted earlier, the housing allowance can not be made retroactive.

Even though a minister’s home mortgage interest and real estate taxes have been paid with money excluded from income as a housing allowance, he may still claim itemized deductions for these same items on Schedule A of his tax return. This practice is commonly referred to as “double-dipping” but is permissible under the IRS guidelines.

The ministerial housing allowance is by far the best tax advantage that a minister has available to him. If the allowance is crafted properly, a good portion of the “income” available to the minister will be tax-free. (Note: More information on the Minister’s Housing Allowance can be obtained from the Minister’s Compensation Manual, available without costs on the Benefits Board’s web site at www.benefitsboard.com.)

 

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 03 - March 2015, Informational Manuals, Ministerial Housing Allowance, Ministers, Social Security, Tax Information. Bookmark the permalink.

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