As a minister receiving a housing allowance, the tax treatment of this allowance is subject to specific rules under the Internal Revenue Code and related IRS publications.
- Exclusion from Gross Income: According to Section 107 of the Internal Revenue Code, the rental allowance paid to a minister as part of their compensation can be excluded from gross income to the extent it is used to rent or provide a home. This exclusion applies only if the allowance does not exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities.
- Conditions for Exclusion: The housing allowance must be officially designated as such by the employing church or religious organization. The amount excluded from income cannot be more than the reasonable pay for your services. Additionally, the allowance must be used for housing expenses, which include rent, mortgage payments, utilities, repairs, and other expenses directly related to providing a home.
- Reporting Requirements: Although the housing allowance can be excluded from gross income for federal income tax purposes, it must still be reported on your tax return. Specifically, you must report the total amount of the housing allowance received as income on Form 1040, U.S. Individual Income Tax Return. However, you can exclude the portion used for housing expenses from your gross income.
- Self-Employment Tax: The housing allowance is not subject to federal income tax withholding, but it is subject to self-employment tax. Therefore, you must include the rental value of the home or the housing allowance as earnings from self-employment on Schedule SE (Form 1040).
- Documentation: It is important to keep records and documentation to support the amount of the housing allowance received and the expenses paid using the allowance. This documentation is necessary to substantiate the exclusion claimed on your tax return.
In summary, the housing allowance you receive as a minister can be excluded from gross income for federal income tax purposes to the extent it is used for housing expenses and does not exceed the fair rental value of the home. However, it must be reported on Form 1040, and it is subject to self-employment tax. Ensure you maintain proper documentation to support the exclusion.
Sources:
Rev. Rul. 63-156
Publication 15-A (2024)
Publication 517 (2023)
Publication 1828 (8/2015)
Publication 1380
Publication 17 (2023)
§ 107. Rental value of parsonages
