Can I Get a Housing Allowance?

The housing allowance is a great tax break that many pastors can get. It helps them save a lot of money on their housing expenditures. But there are a lot of questions: Am I authorized to get money for housing? Who can get it? What are the rules? This complete resource looks at the eligibility requirements, regulatory restrictions, and best practices for the pastoral housing allowance. We'll also talk about some frequent misunderstandings and how to get the most out of this benefit while still following IRS rules.

What is a Housing Allowance?

A housing allowance is a part of a pastor's pay that is not subject to federal income tax. It helps pay for rent, mortgage payments, utilities, and other housing-related costs. This allowance is an important part of the pay packages for many pastors.

Who Can Get a Housing Allowance?

To get a housing allowance, you have to be:

• An IRS definition of a gospel minister
• Paid by a church or other religious group in an official way
• Using the allowance to pay for real housing costs

What the IRS Says a Minister Is

The IRS thinks of someone as a minister if they:

• Are properly ordained, commissioned, or licensed by a religious group
• Hold religious services, celebrations, or events
• Have a formal job and responsibilities in the church

This term can be very broad and include pastors, chaplains, missionaries, and other religious leaders.

Important Requirements for the Housing Allowance

1. Official Name: The church board or governing body must decide on the housing allowance ahead of time, either by passing a resolution or including it in the pastor's contract.
2. A Fair Amount: The allowance can't be more than the fair rental value of the residence, which includes utilities and furniture.
3. Used for Housing Costs: You must use the money to pay for things like rent, the mortgage, utilities, repairs, and furniture.

How to Figure Out Your Housing Allowance

Figure out how much your housing costs each year, including:

• Payments for rent or a mortgage
• Taxes and insurance on property
• Electricity, water, and gas (utilities)
• Fixing things and keeping them up
• Furniture and appliances

The housing allowance shouldn't be more than this number.

Things People Get Wrong

• It's Automatic: No, the allowance must be properly set every year.
• It Doesn't Have to Pay Any Taxes: It doesn't have to pay federal income tax, but it does have to pay self-employment tax unless the pastor chooses not to. The IRS just asks that the amount be reasonable based on the actual cost of housing.

Reporting and Documenting Taxes

The church tells the pastor about the allowance on Box 14 or 18 of their Form W-2. Pastors use IRS Form 1040 Schedule SE to disclose their allowance on their tax returns for self-employment tax. To back up your claims for housing expenses, keep meticulous records of them.

What If Your Housing Allowance Isn't Set Up Correctly?

If you don't correctly identify the allowance, the whole housing part may be taxable income, which might raise your tax bill and make you more likely to be audited by the IRS.

How Church Law and Strategy Can Be Useful

Regan leads Church Law and Strategy, which helps congregations and pastors set up housing allowance policies and pay packages that follow the law. Our subscription programs, such as Academics and The FOUNDATION PLUS PLAN, offer legal audits and individual assistance to help you get the most out of your benefits while making sure you follow all the rules.

Summary Checklist: Can I Get a Housing Allowance?

• Make sure that the IRS knows you are a clergyman.
• Make sure your church officially sets the allowance each year.
• Only use the allowance for things connected to housing.
• Figure out the allowance based on the real, fair costs of housing.
• Keep detailed records of your costs.
• Fill out tax forms correctly with the allowance.
• Get advice from lawyers and tax experts.

The End

The housing allowance is a great perk for pastors, but they have to follow certain standards and do certain things. You can easily make the most of this provision and lower your tax bill while keeping totally compliant if you know what eligibility means, what an official designation is, and how to properly document it. Church Law and Strategy is here to help you and your church with all areas of pastoral pay, including housing allowances. We offer expert legal help that is tailored to the needs of your ministry.

Links Inside

• Find out more about the legal strategy for pastoral recompense.
• Find out more about church tax strategy consultancy.
• Look at reports on church legal audits and compliance.

Links to Other Sites

• IRS official guidelines on Minister’s Housing Allowance
• ECFA’s Best Practices for Pastoral Compensation
• Christianity Today’s article on Pastoral Compensation Challenges

Disclaimer: This blog article is simply meant to give you information and is not legal advice. Reading this material does not make you a client of Church Law and Strategy or its representatives. Please talk to a professional lawyer for particular legal counsel that is right for your church or organization.