HOUSING ALLOWANCE
 

How does the housing allowance benefit a pastor?

A pastor does not pay federal income tax on that portion of his income which is considered to be his housing allowance. The housing allowance is the smaller of the following:

1. The amount designated by the church to be considered housing allowance.  (This is limited to ministry income, but 100% of ministry earnings can be designated as housing allowance).

2. The amount actually spent to provide a home (see below: What expenses are included in the housing allowance?)

3. The FMRV (Fair Market Rental Value) of the furnished home plus actual expenses. The FMRV takes the place of the mortgage payment (including closing costs, down payment, principal, interest, taxes, insurance) and major repairs.

How does the housing allowance affect the paycheck of a pastor?

The pastor continues to be paid in the same manner he was paid prior to the designation of a housing allowance. The fact that a portion of his salary is now designated as housing allowance need not affect the amount nor the manner in which he is paid.

What expenses are included in the housing allowance?

1. Rent or mortgage payments. Including principal, interest, real estate taxes, insurance, closing costs, and down payment.

2. Improvement, repairs, and upkeep. This includes a room addition, new roof, fence, sod, swimming pool, garage, refrigerator repair, etc.

3. Furnishings and appliances. Including dish washer, TV, personal computer, pool table, piano, dishes, blender, lawnmower, etc.

4. Decorator items. Such as rugs, curtains, pictures, plants, knick knacks, wallpaper, paint, towels, bedding, etc.

5. Utilities. Electric, garbage, water, telephone (not business), cable TV, internet, gas, water softener rental, etc.

6. Miscellaneous. This would include cleaning supplies, light bulbs, dry cleaning of drapes, carpet cleaning, landscape tools, garden hose, etc.

Do not include maid or lawn care service, groceries, personal toiletries, cassette tapes, CD's, personal computer software, videos, dish soap, etc.

 In the eyes of the IRS, what needs to be done to establish a housing allowance?

 Simply include the following example in the minutes of any business meeting of the church or board. The names of the individuals making the motion and seconding it should be included. If the church does not provide the home and pay the utilities, then the second paragraph is to be omitted. The housing allowance cannot apply to expenses paid before the date of these minutes. A housing allowance is never retroactive.

1.    It was discussed that under the tax law a minister of the gospel is not subject to federal income tax on the "housing allowance paid to him as part of his compensation to the extent used by him to rent or provide a home."

2.    The parsonage owned by the church has a rental value of $_________ and is provided for the convenience of the church. Actual utility expenses will be paid by the church and they will amount to approximately $_______ for the year.

3.    After considering the statement "Pastor's Estimate of Home Expenses" (see below: How does a pastor estimate his housing expenses?) prepared by _____________, a motion was made and seconded and passed to adopt the following resolution:

4.    Resolved that Pastor __________________ is to receive a total cash remuneration of $________(salary) for the year 20___. Of this amount, $_______ (housing expenses paid from salary) is hereby designated as housing allowance.

         5.        Resolved that as long as Pastor ___________ is our employee the above amount of housing/parsonage
  allowance shall apply to all future years until modified.

 Date_________________ Signed _________________________________

 Who keeps track of the housing allowance and how is it reported to the IRS?

The pastor keeps track of his housing expenses. The church reports the designated housing allowance to the IRS on the pastor's W-2, box 14.

How does a pastor estimate his housing expenses?

I recommend that a pastor use the following form to estimate his housing allowance. Always overestimate, the amount a pastor cannot justify as being spent will be declared as income. It is important to keep accurate records of expenditures. The housing allowance can be amended in mid­year, but the housing allowance is never retroactive.

Name of church  __________________________________________________

Position held _____________________________________________________

Housing allowance for the coming year of 20___. I expect to incur the following expenses to rent or otherwise provide a home. I understand that my actual expenses are what I will deduct on my next year's tax return, and I will not be allowed to deduct any expenses not estimated and designated officially.

                                      ITEM                                                                    AMOUNT

Rent or payments on purchase of a house
including down payment, principal payments, interest, taxes,
and improvements                                                                             $____________

Furnishings and appliances                                                             $____________

Utilities                                                                                                $____________

Other housing expenses (cleaning supplies, etc.)                         $____________

Miscellaneous repairs                                                                       $____________

Total                                                                                                    $____________

Signature__________________________________  Date ________________