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Clergy Housing/Personage Allowance
Ordained, licensed, or commissioned clergy are being paid for ministerial duties are eligible to receive an income-tax-free Housing Allowance, to the extent that it is used to cover expenses of their primary residence which the church does not pay for directly. The declaration of how much compensation is being designated as Housing Allowance must be in writing
prior to the compensation being paid. Keep in mind that Housing Allowance is subject to Social Security taxation.
The Housing Allowance cannot exceed the lowest of three annual amounts:
- The total compensation paid, or
- The dollar amount designated as Housing Allowance, or
- The annual fair rental value of the home as furnished, plus annual utilities (if the minister is the homeowner).
Clergy should estimate their expected annual housing expenses (which cannot exceed annual fair rental value explained above), and typically should request that this amount be designated as their Housing Allowance for the upcoming year. The amount should be approved by the church board in the form of a written resolution and recorded in the church board minutes.
The Housing Allowance figure should be submitted annually, and estimated high enough to cover potential unexpected expenses. Compensation received as Housing Allowance but not actually used for housing expense must be reported as taxable income on that year’s tax returns.
Clergy are responsible for maintaining detailed records and receipts for all housing expenditures for a possible audit of their personal tax returns.
See our Audit Proofing Your Church & Its Clergy, Part II for:
- List of housing allowance expense items.
- Worksheet for estimating clergy’s annual housing expense.
- Professionally-prepared sample Church Board Housing Allowance resolution for clergy who own/rent, or who live in a church parsonage.
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